Gas price rebound expected to send Canada’s inflation higher in July

Canada's inflation is expected to climb higher in July as gas prices rebound, economists predict. Statistics Canada will release its Consumer Price Index for July on Monday, with a Reuters survey of economists forecasting annual inflation to have increased by 0.1 percentage point to 2.9% last month. Inflation eased in June as tensions between the US and Iran eased, but renewed hostilities in the oil-producing region caused gas prices to surge again in July.

RBC economists estimate that, while gas prices remain below April and May peaks, they are still 25% higher this July compared to a year ago, compared to a 20% increase in June.

TD Bank's Andrew Hencic expects headline inflation to be around 2.9% or 3% in July, stating that there has been significant volatility in the energy prices between June and July. While food inflation slowed to 3.5% in June, it is expected to remain above three percent in July as the closure of the Strait of Hormuz due to Middle East conflict affects agricultural inputs like fertilizer.

This could lead to sustained pressure on food inflation in the coming months. The July inflation data will be the Bank of Canada's final look at price pressures before its next interest rate decision on September 2, with the central bank maintaining its benchmark rate at 2.25% for six consecutive decisions. Financial market analysts currently see a nearly 97% chance of a rate hold from the Bank of Canada next month.