Inflation in Canada Accelerates as Gas Price Relief Slows and Food Prices Climb

Key Points

* Canada's inflation rate rose to 7.6% in July, up from 7.4% in June. * The increase was driven by higher prices for food, shelter, and transportation. * The Bank of Canada is expected to continue raising interest rates in an effort to bring inflation under control.

Inflation Accelerates

Canada's inflation rate accelerated to 7.6% in July, up from 7.4% in June. This is the highest inflation rate since 1983. The increase was driven by higher prices for food, shelter, and transportation. Food prices rose by 8.8% in July, the largest increase since August 2021. The increase was driven by higher prices for fresh vegetables, meat, and dairy products. Shelter costs also rose in July, up 7.2% from a year ago. This was the largest increase since December 2021. The increase was driven by higher prices for rent and homeownership costs. Transportation costs rose by 10.8% in July, the largest increase since September 2021. The increase was driven by higher prices for gasoline and diesel fuel.

Bank of Canada to Raise Rates

The Bank of Canada is expected to continue raising interest rates in an effort to bring inflation under control. The central bank has already raised rates four times this year, and is widely expected to raise rates again at its next meeting in September. Higher interest rates make it more expensive for businesses and consumers to borrow money. This can slow economic growth and reduce demand for goods and services. The Bank of Canada hopes that by slowing economic growth, it can reduce inflation.

Outlook

The outlook for inflation in Canada is uncertain. The Bank of Canada expects inflation to remain elevated in the near term, but to gradually decline over the next two years. However, there are a number of risks that could keep inflation high, including the war in Ukraine, supply chain disruptions, and rising commodity prices. The war in Ukraine has led to higher prices for food and energy, which could put upward pressure on inflation. Supply chain disruptions have also made it more difficult for businesses to get the goods and materials they need, which could also lead to higher prices. Rising commodity prices could also push up inflation, as businesses pass on the cost of higher raw materials to consumers. Despite these risks, the Bank of Canada believes that inflation will eventually decline. The central bank is committed to using its monetary policy tools to bring inflation back to its target of 2%.