Canada inflation hits 3pc as new US tariffs loom

Canada's annual inflation rate reached three percent in July, according to new data released on Monday. The surge in inflation, which spiked to a three percent mark, comes just days before the threat of new tariffs from the United States, spearheaded by President Donald Trump, could further destabilize Canada's economy. Canada's Prime Minister, Mark Carney, acknowledged that discussions aimed at averting the US tariffs are currently in an "intense and delicate" phase, though he did not disclose any specifics, asserting that it is not an appropriate time to discuss negotiations publicly.

Statistics Canada's July report highlighted the impact of the Middle East conflict on Canada's inflation figures. The ongoing conflict, including the blockade of the Strait of Hormuz and partial closure of Red Sea shipping routes, contributed to a 25.7 percent increase in petrol prices compared to July 2025. The conflict also put upward pressure on gasoline prices, according to the national statistics agency.

Tourism-related businesses, including air travel, experienced increased costs, further driving up inflation prices. Canada co-hosted the World Cup, which analysts noted as a factor in elevated spending related to the event. While Canada's inflation rate hit the upper edge of the central bank's preferred range, analysts pointed out that an interest rate hike to curb inflation is unlikely in the near term due to the looming threats to Canada's economy.

US trade friction was already viewed as a significant risk before Trump's announcement of potential new tariffs. Canadian negotiators have been in Washington, actively seeking a deal to avoid new tariffs while seeking relief from existing sectoral levies that have severely impacted Canada's auto, steel, lumber, and aluminum industries.

Canadian media reports indicate that Ottawa has proposed various concessions, such as pressuring provinces to reopen US alcohol and wine markets. However, it remains uncertain whether a deal is imminent.

When asked by reporters about Canada's potential response if Washington enforces the new tariffs, Carney stated that he anticipates speaking with Trump this week and has a contingency plan to cover all possible scenarios. TD Bank senior economist Leslie Preston noted that the July inflation data would not "spook" the Bank of Canada into raising interest rates, citing ongoing friction with Washington.

Preston emphasized that Canada is still grappling with the confidence shock caused by the uncertainty surrounding US tariffs, which remain a significant downside risk to Canada's economy, given the absence of a deal to avert the 50 percent tariffs slated to take effect on August 19.