Canada’s annual inflation rate has risen to 3.3 per cent in July, up from 2.8 per cent in June, according to Statistics Canada. Although some analysts had predicted that inflation would rise, the results are higher than the anticipated estimate of 3 per cent and pushes the inflation rate beyond the central bank’s target range of one to three per cent.
This uptick in the annual inflation rate is now expected to pressure the Bank of Canada into announcing an interest rate hike in September. After a five-month hiatus, the central bank resumed interest rate hikes in June and July. The policy rate was consequently raised to 5 per cent.
Bank of Canada governor, Tiff Macklem, has previously stated that he could not rule out additional interest rate hikes as the government sought to lower inflation to the 2 per cent target. With the latest report, the central bank is now forecasting that the 2 per cent target will likely be achieved in mid-2025. This is two quarters later than had been previously predicted.
Macklem acknowledged that the downward momentum of inflation was waning and forecasts indicated that the figures would remain around the 3 per cent mark in the coming year. He expressed concern that this could also lead to price stability stalling.
StatCan figures show that energy prices were a contributor to the inflation rate rising. This is due to energy prices recording a smaller decline in July than in June, with monthly gas prices having risen by 0.9 per cent in July from June. Nova Scotia recorded the highest jump in pump prices, rising 14 per cent month-to-month. This sharp rise was however linked to the federal carbon levy introduction in the province.
Grocery prices also rose by 8.5 per cent in July from June. Though high, the increase was slightly lower than the 9.1 increase experienced in June from May. The slowdown in price appreciation was partly attributed to fresh fruit whose prices rose by just 4.1 per cent in July, down from the 10.5 per cent increase reported in June. Grapes were one of the fresh fruits to aid in this slowdown by having declined in price by over 40 per cent in July. A sizable annual drop of 12.7 per cent in travel-related service prices also helped.
The biggest contributor to the inflation increase was identified as mortgage interest costs. Mortgage interest costs were found to have increased by a staggering 30.6 per cent over the last year. The central bank is hopeful that with higher shelter costs, Canadian households will be pushed into spending less elsewhere and thus aid in slowing down the inflation rate.
Contact Accountancy Insurance
We would love to hear from you.
About Accountancy Insurance
Thousands of accounting firms offer our tax audit insurance solution, Audit Shield to their clients. Find out why.