Canadian inflation jumps in July, raising prospect of another interest rate hike

Canada’s annual inflation rate surged more than expected to 3.3 per cent in July as core measures eyed by the central bank remained stubbornly high, data showed on Tuesday, increasing the likelihood of another interest rate increase.Analysts polled by Reuters had forecast inflation would rise to 3.0 per cent from the 27-month low of 2.8 per cent recorded in June. The consumer price index was up 0.6 per cent on a month-over-month basis, Statistics Canada said, also higher than a forecast of a 0.3 per cent gain.The average of two of the Bank of Canada’s core measures of underlying inflation, CPI-median and CPI-trim, came in at 3.65 per cent compared with 3.70 per cent in June.“I think we’re getting another round of spiraling upside risks to inflation in Canada,” said Derek Holt, vice president of capital markets economics at Scotiabank. “Hikes aren’t done in my opinion.”Money markets increased bets for a quarter-percentage-point rate hike in September. They saw a 35 per cent probability immediately after the release of the inflation data, up from 22 per cent beforehand, and then settled back to a 27 per cent chance.The Canadian dollar was trading 0.1 per cent lower at 1.3465 to the greenback, or 74.27 U.S. cents, after touching a one-week low at 1.35 before the data.The Bank of Canada projected in July that inflation would hover around 3 per cent for about a year, before creeping down to its 2 per cent target by the middle of 2025, in part due to excess demand.Statscan said the rise in headline inflation was mainly attributable to a base-year effect in gasoline prices, as a large monthly decline in July 2022 was no longer impacting the 12-month movement.Grocery prices rose 8.5 per cent in July, the slowest pace in more than a year, mainly due to prices for fresh fruit and to a lesser extent, bakery products, Statscan said.Excluding food and energy, prices rose 3.4 per cent compared with a 3.5 per cent rise in June. Services prices rose 4.3 per cent annually in July, while the price of goods increased 2.3 per cent.