Statistics Canada released its July consumer price index report this morning, with a 3.3 per cent inflation rate. The rise in the pace of growth since June was led by gasoline prices. Gas prices are displayed in Carleton Place, Ont. on Tuesday, May 17, 2022. THE CANADIAN PRESS/Sean Kilpatrick

By Nojoud Al Mallees, Canadian Press

As inflation jumps to 3.3 per cent in July, economists say uptick is bad news for BoC

Aug 15, 2023 | 9:00 AM

Canada’s annual inflation rate rose to 3.3 per cent in July, as economists warn the latest consumer price index report spells bad news for the Bank of Canada.

The uptick in price growth 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.

“There’s no sense sugar coating this one — it is not a good report for the Bank of Canada,” said BMO chief economist Douglas Porter in a note to clients.

Inflation ticked up last month because gasoline prices fell less dramatically on a year-over-year basis than they did in June, Statistics Canada said.

After a significant run-up in energy prices prompted by the Russian invasion of Ukraine, lower gasoline prices have largely driven the decline in inflation over the last year.

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Now, other underlying price pressures need to ease for inflation to fall further. Porter notes gasoline prices are on pace to rise by five per cent in August.

The latest report has raised the odds of a rate hike next month, according to forecasters, despite other signs of economic softening, including rising unemployment.

And while Porter still expects the Bank of Canada to stay on the sidelines, he says “the inflation figures will make it a tougher call.”

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.

This report by The Canadian Press was first published Aug. 15, 2023.