Statistics Canada will release its inflation reading for July on Tuesday, and economists are predicting a higher Consumer Price Index (CPI) reading compared to the previous month. The expected increase is driven by higher grocery bills and energy costs.
In June, Canada’s annual inflation rate entered the Bank of Canada’s target range of one to three percent for the first time since March 2021. The CPI rose 2.8 percent year-over-year in June, following a 3.4 percent increase in May. However, economists believe this progress will be short-lived.
According to Royal Bank of Canada assistant chief economist Nathan Janzen, the CPI for July is expected to edge up to 2.9 percent. Janzen attributes this growth to rising energy prices, with gas prices remaining below year-ago levels but experiencing a smaller decline compared to June. Janzen also anticipates that food price growth remained high in July but with a slowing pace of increase due to lower commodity prices and easing supply chain disruptions.
Bank of Montreal’s chief economist, Doug Porter, calls for an increase “a bit above three percent,” aligning with recent data from the U.S. Bureau of Labor Statistics. Both Porter and Janzen warn of an economic slowdown on the horizon, suggesting that the Bank of Canada may maintain its current lending rate until these concerns subside.
The upcoming CPI reading on Tuesday will be closely watched to determine the Bank of Canada’s next rate hike decision. As more economic weaknesses emerge, underlying price pressures are expected to ease.
Overall, the Bank of Canada is likely to face a setback in its fight against inflation in July, as higher grocery bills and energy costs contribute to an expected increase in the Consumer Price Index.
