July CPI hit 3% on gasoline and airfares, but core inflation stayed at 2%. Economists say the Bank of Canada can wait, with no rate change expected until mid-2027.
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Canada’s inflation rate rose to 3% in July, up from 2.8% in June. Gasoline prices and airfares drove the increase. But core inflation, which strips out volatile items, held steady at the Bank of Canada’s 2% target. Economists say the central bank can afford to wait.
CIBC senior economist Andrew Grantham said the headline print, a tick above consensus, isn’t a concern. “Nothing to worry about,” he wrote in a note Monday. The acceleration in July could partly unwind in August, he noted, because Statistics Canada attributed some of the airfare jump to World Cup travel to the U.S. Average gasoline prices in August are tracking close to July levels, which should keep headline inflation near 3%. Grantham forecasts no change in the overnight rate until around mid-2027.
Bradley Saunders, North America economist at Capital Economics, said core prices rose at their strongest pace in almost a year in July, but the key drivers were temporary. The annual core rate remained at 2%. “The key message therefore remains that a soft inflation backdrop is providing an effective counterbalance to stronger activity and labour market data with regards to the path for interest rates,” Saunders said.
The Bank of Canada has time to assess oil price fluctuations, how tariff negotiations play out, and whether the recent rebound in economic activity can be sustained, Grantham added. Policymakers next meet in September. Markets are not pricing a rate move until at least the second half of 2026.
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