Canada’s inflation hits 3% as new US tariffs loom

Canada's inflation rate reached 3% in July, driven by soaring gasoline prices amid the Middle East conflict, according to data released by Statistics Canada on Monday. The conflict, which includes the blockade of the Strait of Hormuz and the partial closure of Red Sea shipping routes, pushed up gasoline prices by 25.7% compared to July 2025, Statistics Canada reported.

Prime Minister Mark Carney stated that talks on averting these tariffs were in an "intense and delicate" stage, but provided no specifics, emphasizing it was not the time for public negotiations. The inflation data, with June's rate at 2.8%, also attributed increased costs in tourism-related businesses, such as air travel, to the overall price rise, particularly due to Canada's co-hosting of the World Cup.

While a 3% inflation rate is near the upper limit of the central bank's preferred range, analysts do not anticipate an interest rate hike anytime soon due to looming economic threats, including US trade friction. US president Donald Trump has threatened new 50% tariffs on various goods starting August 19, a move that has already been viewed as a significant risk to Canada's economy.

Canadian negotiators have been in Washington seeking a deal to prevent these tariffs while seeking relief from sectoral levies that have negatively impacted sectors like auto, steel, lumber, and aluminum. However, the success of a deal remains uncertain, with Ottawa reportedly offering concessions like pressing provincial governments to allow US alcohol and wine back on shelves.

Despite these efforts, it is unclear if a deal is imminent. When asked about Canada's potential response if the US follows through with new tariffs, Carney indicated he planned to speak with Trump that week and had a plan for all possible scenarios. TD Bank senior economist Leslie Preston suggested that the inflation data would not prompt the Bank of Canada to raise interest rates, citing ongoing tensions with Washington.

Preston emphasized that Canada continues to grapple with the "confidence shock" from the on-again, off-again tariff threats from the US, which remains a clear downside risk to the Canadian economy.