Canada's annual inflation rate accelerated to 3.0% in July, above the 2.9% forecast and up from 2.8% in June, as a Middle East-driven gasoline spike pushed prices to the ceiling of the Bank of Canada's target range. Core inflation gauges also firmed, and the Canadian dollar edged higher against the US dollar following the report.
Statistics Canada's consumer price index rose 3.0% year-over-year in July, beating the 2.9% consensus and accelerating from June's 2.8% pace. On a monthly basis, prices rose 0.5%, swinging from a 0.4% decline in June and topping the 0.4% gain economists expected. The reading now sits at the ceiling of the Bank of Canada's 1% to 3% control range.
Gasoline surge does the heavy lifting
Gasoline was the major driver, with annual price growth accelerating to 25.7% from 20.5% in June, as Middle East tensions, a Strait of Hormuz blockade and a partial closure of Red Sea shipping routes pushed energy costs higher. Travel tours also added to the increase, rising 15.2% in July compared with 6.8% in June, a move tied partly to the football World Cup. Airfares climbed 12.0% versus 9.6% the prior month. However, a slower rise in grocery prices offset some of the pressure, with food purchased from stores up 3.1% in July after a 3.9% gain in June.
Core measures firm too
The report was not purely an energy story. CPI excluding gasoline held at 2.2% year-over-year for a third straight month, while the Bank of Canada's core gauges all edged higher. Trimmed CPI rose to 1.9% from 1.8%, above the 1.8% forecast, and Common CPI climbed to 2.7% from 2.6%, compared with 2.5% expected. Median CPI matched forecasts, rising to 2.0% from 1.9%. That combination suggests underlying inflation pressure firmed even as gasoline drove most of the headline acceleration.
Loonie firms, rate-hike odds build
The Canadian dollar firmed after the data, trading up 0.17% to C$1.3851 against the US dollar, or 72.20 US cents.
Markets have raised the odds of a Bank of Canada rate hike by December to 70%, with 65 basis points of tightening priced in over the next year. Part of the current gasoline swing traces to a gasoline holiday introduced by the Carney government that is set to end on Sept. 7, a shift that could add further upward pressure to pump prices once it lapses.
Sources: Investinglive, Investing.com Economy News, ActionForex
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