Annual inflation rate hits 3.0% in July

Darnell Taylor
August 20, 2018

OTTAWA-Headline inflation in Canada reached a near seven-year high in July, led by higher prices for gasoline and air transportation.

Earlier in the summer, the Bank of Canada said that the inflation rate would jump to about 2.5 percent before it settles back down to two percent in late 2019. Second-quarter GDP figures are set to be released August 30.

The Canadian dollar gained against its USA counterpart on Friday after the country's annual inflation rate accelerated by more than expected, increasing prospects that the Bank of Canada might raise interest rates next month.

Money markets expect the central bank to hike its benchmark interest rate, which sits at 1.50 per cent, once more by December.

The country's Consumer Price Index (CPI) rose three percent on a year-over-year basis in July as higher prices for airplane tickets, tourism and gasoline pushed the rate up.

"It's a strong inflation report indicating that the Canadian economy is doing well, but it's mostly those fuel prices that are trickling into the prices of everything else".

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The average of Canada's three measures of core inflation, which leave out more-volatile data like pump prices and are closely watched by the central bank, rose last month to 2.0 per cent compared with 1.96 per cent in June.

Bank of Montreal Capital Markets economist Benjamin Reitzes calls July's inflation increase a one-off event, adding the overall backdrop on inflation hasn't changed much.

On a seasonally-adjusted monthly basis, the consumer price index was up 0.5% in July, after increasing 0.2% in June.

Food purchased from restaurants also gained 4.4 per cent, while mortgage interest costs rose 5.2 per cent.

Todd Hirsch, economist with ATB Financial, says that the increase in gas prices will also affect the cost for all sorts of other goods that need to be transported.

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