Economists say the Bank of Canada likely won’t be pleased with July’s headline inflation reading, which came in hotter than expected.
Statistics Canada reported today that the annual headline inflation rate rose at a pace of 3.3% in July, higher than the 3% expected by economists. That’s also up from the 2.8% rate reported in June.
The higher-than-expected reading was due largely to base-year effects, including a sharp monthly decline in gasoline prices in July 2022, as well as a 127.8% year-over-year surge in Alberta electricity prices.
On a monthly basis, the CPI was up 0.6% in July following a 1% gain in June.

Meanwhile, the Bank of Canada’s preferred measures of core inflation, which strip out volatile energy prices, eased slightly. The three-month annualized change in CPI-median and CPI-trim fell slightly to +3.6% and +3.4%, respectively.
The Bank’s newest measure of core inflation, core services excluding shelter, also eased during the month to 4.2% from 4.6% in June.
Mortgage interest costs remain the top contributor to inflation
The mortgage interest cost index was once again the largest contributor to headline inflation, Statistics Canada said, reaching a new record of +30.6%.
StatCan noted that excluding the mortgage interest cost index, headline inflation would have been 2.4% in July.
While this per capita index is up over 30% year-over-year, actual mortgage interest costs in dollar terms as of the first quarter have risen nearly 70% over the past year, data released from Statistics Canada show.
Bank of Canada likely to hold rates in September
Despite the higher-than-expected inflation reading, economists believe that on balance other economic indicators are suggesting a slowing of the economy, which they say should be enough to keep the Bank of Canada on the sidelines at its next policy meeting in September.
“July’s headline inflation print stands in contrast to the relatively weak macroeconomic data over the past few weeks,” noted Randall Bartlett from Desjardins, pointing specifically to GDP, employment and international trade data.
“When combined with the deceleration in the three-month annualized core inflation numbers, this reinforces our call that the Bank of Canada is likely to remain on hold at its September meeting, barring any major data surprises,” he wrote.
BMO’s Douglas Porter agreed, despite saying this was “not a good report” for the Bank of Canada.
“We still believe that with the recent upswing in the unemployment rate and clear signs of cooler spending that the BoC would prefer to move to the sidelines in September and give prior hikes time to work, but the inflation figures will make it a tougher call,” he noted in a research report.
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Last modified: August 15, 2023