July CPI hit 3%, matching the ceiling of the BoC's control range, as gas prices surge
Canada's inflation rate climbed to 3% in July, matching the top of the Bank of Canada's (BoC) target range and reigniting a debate that mortgage brokers cannot afford to ignore: whether the central bank's next move is a hike, not a hold.
Statistics Canada reported Monday that the consumer price index (CPI) rose 3% year over year last month, up from 2.8% in June, with gasoline once again the primary driver. On a monthly basis, prices rose 0.5%.
Gasoline costs accelerated, rising 25.7% year over year in July compared with 20.5% in June, as renewed hostilities in the Middle East and the blockade of the Strait of Hormuz continued to squeeze energy markets.
The partial closure of Red Sea shipping routes in late July added further upward pressure. Travel tours also contributed to the headline rise, with Canadians paying more for hotels and flights to United States cities hosting the FIFA World Cup.
Food purchased from stores offered some relief, rising 3.1% annually, down from 3.9% in June, driven by slower price growth for fresh vegetables, chicken, and cereal products.
Shelter costs, which include rents and mortgage interest costs, rose just 1.3% year over year, remaining subdued. However, July marked the 18th consecutive month that grocery price inflation outpaced the all-items CPI, according to Statistics Canada.
Core inflation holds — for now
The two measures the BoC watches most closely provided a more reassuring read. CPI-median came in at 2.0% and CPI-trim at 1.9%, both near the central bank's 2% midpoint.
That stability is consistent with the BoC's July 15 decision to hold the overnight rate at 2.25% for a sixth consecutive time, and supports the view, as recent analysis of what it would take for the Bank of Canada to raise interest rates laid out, that the bar for action remains high.
Following better-than-expected GDP growth, economists from TD Economics, CIBC Economics, RBC Economics, and BMO Capital Markets remain aligned that the Bank of Canada is likely to hold its policy rate steady.https://t.co/zC3DaNdf96
— Canadian Mortgage Professional Magazine (@CMPmagazine) August 4, 2026
Hike risk grows for 2026
Yet not everyone is convinced the BoC can stay on the sidelines indefinitely. Scotiabank has forecast 50 basis points of rate increases in the fourth quarter of 2026 and a further hike in early 2027, warning in its July report that "underlying cost pressures continue to run at levels that are inconsistent with a comfortable return to target."
That view stands at odds with most of Bay Street, but the July CPI print adds marginal weight to the hawkish case — and the question of whether a BoC rate hike is becoming more likely is increasingly being asked.
Sherry Cooper, chief economist at Dominion Lending Centres Group (DLCG), recently said that the central bank was unlikely to shift tone immediately.
"With wage growth decelerating further and energy prices more moderate, the Bank of Canada won't take on a more hawkish tone yet, though a strengthening economic backdrop could eventually push it in that direction if it persists," Cooper wrote.
Andrew Hencic, director and senior economist at TD Economics in Toronto, echoed that view after the June 10 BoC hold: "Given the competing forces on inflation, we expect the Bank of Canada to stay on hold through the balance of the year."
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