Canada’s annual inflation rate rose to 3.3 per cent in July as worries grow that progress on getting prices under control will stall.
Statistics Canada released its July consumer price index report Tuesday, which shows price growth gained pace last month.
This comes after inflation tumbled to 2.8 per cent in June, falling within the Bank of Canada’s target range of between one and three per cent for the first time since March 2021.
Lower gasoline prices have largely driven the decline in inflation over the last year. Now, economists say underlying price pressures need to ease for inflation to fall further.
The federal agency says the rise in inflation is due to the fact that gasoline prices fell less dramatically on a year-over-year basis than they did in June.
The report says July gasoline prices were being compared to when prices had declined significantly in July 2022, as fears of an economic slowdown grew.
Excluding energy prices, the consumer price index decelerated to 4.2 per cent, down from 4.4 per cent in June.
Meanwhile, grocery prices rose 8.5 per cent on an annual basis. The federal agency says prices rose more slowly than June’s 9.1 per cent, largely due to smaller price increases for fruit and bakery goods.
Prices for travel-related services also slowed or declined compared to a year ago. Airfare, for example, was down 12.7 per cent since July 2022.
The Bank of Canada expects inflation to hover around three per cent over the next year, before steadily declining to two per cent by mid-2025.
This longer trajectory back to the inflation target prompted the central bank to raise interest rates again in July, bringing its key rate to 5.0 per cent.
The rapid rise in interest rates has fed into higher mortgage interest costs, which Statistics Canada says continue to be the largest contributor to inflation.
Mortgage interest costs posted another record year-over-year increase in July, rising by 30.6 per cent.
The central bank is hoping households facing higher shelter costs due to rising interest rates to pull back on spending elsewhere and thereby slowing inflation.
The Bank of Canada is set to make its next interest rate decision on Sept. 6.
Banner image: THE CANADIAN PRESS/Sean Kilpatrick
This report by The Canadian Press was first published Aug. 15, 2023.