The latest CPI figures are due to be released today
Analysts largely expect inflation to have ticked upwards in Canada in July, a development that would seemingly indicate much of the central bank’s difficult work on bringing the consumer price index down further is just beginning.
New figures on inflation are due to be revealed by Statistics Canada, the country’s national statistics agency, later this morning.
"I think (the report) is going to be a bit of a dash of reality for everyone, including the Bank of Canada, that basically the easy phase is over and now the hard work begins." Bank of Montreal (BMO) chief economist Doug Porter told The Canadian Press.
Although Canada’s inflation rate fell into 2.8% in June which was within the country’s target range, surveyed economists expected that it won’t stay there for long.
BMO and Canadian Imperial Bank of Commerce (CIBC) expected the inflation rate to be at 3.1% in July, partly due to gasoline price increases.
"Gasoline has very quickly gone from being a big drag on inflation to being close to neutral to possibly adding to inflation, again, as early as next month's report." said Porter.
Most of the Bank of Canada’s forecasts showed how it had been expecting inflation to hover around 3% over 2024 before eventually declining to 2% by mid-2025. Currently, the Bank of Canada’s key interest rate is at 5%, its highest level for 22 years.
The central bank had begun raising rates again in June after briefly pausing hikes as a response to the economic data. Still, Porter said slight recent increases in the national unemployment rate suggested the Bank should think carefully before hiking further.
"I would actually say it would be unwise to keep raising interest rates with the kind of upswing we've seen in the unemployment rate in the past few months.” said Porter.
However, Andrew Grantham, CIBC executive director of economics, said that he is expecting another rate increase by the Bank in September.
"One of the reasons why our current forecasts actually have one more interest rate hike from the Bank of Canada... is that the Bank of Canada does seem to be kind of leaning toward the risk of doing too much.” he said.
"They would rather get inflation back to target quicker rather than later."
The Bank’s next interest rate announcement is scheduled for September 6.
