Canada experienced a rise in inflation to three percent in July, attributed to escalating tensions in the Middle East leading to higher gas prices. Statistics Canada data revealed a faster growth rate for gas prices in July, increasing by 25.7 percent year-over-year, compared to the previous month’s 20.5 percent rise. The blockade in the Strait of Hormuz and partial shipping route closures in the Red Sea were cited as causes for the energy price surge.

Economists had forecasted a slight increase to 2.9 percent, but the actual inflation rate of three percent surpassed expectations. Travel tour costs surged in July, driven by pricier hotels and flights to U.S. destinations during the FIFA World Cup period.

Moreover, higher jet fuel expenses led to a 12 percent year-over-year increase in air transportation prices in July, up from 9.6 percent in June. However, BMO senior economist Robert Kavcic indicated that some of these upward pressures would be temporary, with the conclusion of the World Cup and a slight decrease in gas prices in August.

While food prices helped offset inflationary pressures elsewhere, the inflation rate for food purchased from stores dropped to 3.1 percent in July from 3.9 percent in the previous month. Slower growth in fresh vegetables, chicken, and cereal products contributed to this deceleration, while fresh fruit inflation accelerated to 6.1 percent due to soaring costs of berries and melons.

Statistics Canada highlighted that grocery price inflation has exceeded the all-items consumer price index for 18 consecutive months. Core inflation measures, excluding volatile components like gas and food, were slightly higher than anticipated in July. The Bank of Canada’s core inflation indicators, such as CPI-trim and CPI-median, were within the target range despite the uptick in July.

The July inflation data will influence the Bank of Canada’s upcoming interest rate decision on September 2. The central bank has maintained its benchmark interest rate at 2.25 percent for six consecutive decisions. Economists predict that the Bank of Canada will continue this trend in September, considering the mild core inflation measures in July. Both BMO and CIBC expect the central bank to keep interest rates unchanged for the remainder of the year.