July inflation rate hits 3.4%

Canada's annual rate of inflation hit 3.4 per cent in July — its highest level since March 2003 — due to higher gasoline prices.

Statistics Canada said July's 12-month price increase was up from the 3.1 per cent annual rise seen in June.

With gasoline factored out, the one-year increase in prices was 2.1 per cent, up from the 1.8 per cent figure seen in June.

Driven by higher world prices for oil, prices at the gas pumps rose 28.6 per cent between July 2007 and last month.

Natural gas costs were also 25 per cent higher year-over-year, partly due to a decline in prices that occurred at the same time last year and to recent increases related to oil prices.

'The price changes in the 'basket' reflect real inflation because they are a comprehensive group of common purchases. This is the best way to calculate inflation.'

—Percy McLaren

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Mortgage interest charges advanced 8.5 per cent from July 2007 to July 2008, but that was down from the nine per cent increase posted in the 12 months to June.

"The slowdown in the rise in mortgage interest cost was due more to a softening of new housing prices rather than to lower mortgage interest rates," Statistics Canada said.

Food prices were also higher. The one-year increase in prices was 4.3 per cent, led by a 13.2 per cent rise in the cost of bakery products.

The core rate of inflation — which omits some of the more volatile components and is closely watched by the Bank of Canada for interest-rate setting — stood at 1.5 per cent from July 2007 to July 2008. July was the fourth straight month that the one-year core index increased 1.5 per cent.

Economists said they expect the steady core inflation reading will keep the Bank of Canada from adjusting interest rates into next year.

"While headline inflation picked up on the month, this morning's report shows little evidence of these higher prices filtering through to core inflation," said TD Bank economist Dina Cover.

"And looking ahead, it appears as though the worst may be behind us. Energy prices have retreated considerably over the past month, and we do not expect to see a meaningful rebound during the second half of the year," Cover said.

"Look for inflation to hang around three per cent for some time yet, while core looks poised to grind higher as the loonie-at-par discounts begin to fade from the calculation later this year," said BMO Capital Markets economist Douglas Porter.

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