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Inflation in Canada slows in July, rising 7.6 per cent from last year

HOUSTON, TEXAS - AUGUST 15: A customer shops for eggs in a Kroger grocery store on August 15, 2022 in Houston, Texas. Egg prices steadily climb in the U.S. as inflation continues impacting grocery stores nationwide. (Photo by Brandon Bell/Getty Images)
Statistics Canada says inflation increased 7.6 per. cent in July. (Photo by Brandon Bell/Getty Images) (Brandon Bell via Getty Images)

Canadian inflation slowed to 7.6 per cent in July, according to Statistics Canada, marking the first deceleration since last June.

The slowdown in the Consumer Price Index (CPI) was driven by lower gasoline prices, but the cost of food, shelter and services related to travel continued to rise on a monthly basis.

July's inflation rate was slower than the 8.1 per cent year-over-year jump from June, which had been driven by skyrocketing gas prices. Gas prices rose 35.6 per cent annually in July, less than the 54.5 per cent increase seen in June. But when gasoline is stripped out, prices in July still increased 6.6 per cent year-over-year, ahead of the 6.5 per cent annual increase seen in June. On a monthly unadjusted basis, CPI increased 0.1 per cent, the seventh consecutive monthly increase.

"While gasoline prices declined on a monthly basis in July, prices for other non-durable goods like natural gas and groceries rose," Statistics Canada said in its data release on Tuesday, adding that price increases for travel-related services, including flights, restaurant meals and hotel stays, also contributed to the month-over-month rise.

Four of the eight major components of the index saw smaller increases in the month of July, including shelter; household operations, furnishings, and equipment; clothing and footwear; and transportation.

'A concern for the Bank of Canada'

But food prices jumped in July, up 9.2 per cent annually and up 0.9 per cent from the previous month. Prices for food purchased from grocery stores increased 9.9 per cent year-over-year in July. Bakery products were up 13.6 per cent, dairy products jumped 8.9 per cent, fresh vegetable prices were up 8.8 per cent and meat prices increased 6.1 per cent. Other food categories seeing faster price growth include eggs (15.8 per cent), coffee and tea (13.8 per cent), fresh fruit (11.7 per cent), preserved fruit and fruit preparations (10.4 per cent), sugar and confectionery (9.7 per cent), and non-alcoholic beverages (9.5 per cent).

Shelter costs were up 7 per cent annually in July, a 0.4 per cent increase compared to June. Rent also climbed 4.9 per cent year-over-year across the country, with Prince Edward Island seeing the biggest jump (9.4 per cent), followed by Nova Scotia (8.4 per cent) and Ontario (6.4 per cent).

Travel costs also continue to rise amid strong demand. Airfares increased 25.5 per cent compared to June. Accommodation prices jumped 47.7 per cent annually, with prices surging the most in Ontario (70 per cent) followed by Nova Scotia (64.4 per cent), and British Columbia (49.8 per cent).

"Canadian inflation has taken its foot off the gas, but other elements in July's inflation story were not as reassuring," CIBC economist Karyne Charbonneau said in a research note on Tuesday.

"While inflation seems to have finally started its long descent, the acceleration in inflation excluding food and energy will be a concern for the Bank of Canada."

The Bank of Canada previously warned that inflation will likely remain around 8 per cent over the next few months and that more interest rate hikes are likely needed to rein in prices. The central bank has been hiking rates aggressively since March, with its most recent 100 basis point hike bringing its key interest rate to 2.5 per cent.

While the monthly inflation rate was less than the Bank of Canada's forecast, Desjardins economist and head of macro strategy Royce Mendes says "this is no time to get complacent."

"The 9.2 per cent decline in gasoline prices did a lot to blunt price growth in other areas," he wrote in a research note following the release of CPI.

"Some of that above-target inflation might represent lingering supply issues, but much of it is demand driven and needs to be dealt with by monetary authorities. So, while the Bank of Canada won't be conducting another 100 basis point hike, we continue to see central bankers raising rates by another 50 basis points in September."

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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