‘The hard work begins.’ Economists expecting rise in inflation rate

Both BMO and CIBC expect inflation to come in at 3.1 per cent in July, mainly due to gas prices. But there's debate over whether the Bank of Canada will raise interest rates.

Forecasters anticipate this week’s consumer price index report to show inflation rose last month, signalling a reversal in progress after a year of steady declines.

Canada’s annual inflation rate fell back to the country’s target range in June for the first time since March 2021, tumbling to 2.8 per cent.

But economists expected the victory against high inflation to be short-lived, as underlying price pressures suggest it will take some time for inflation to return to the two per cent target.

“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,” said Douglas Porter, BMO’s chief economist.

Both BMO and CIBC expect inflation to come in at 3.1 per cent in July, largely due to higher gasoline prices.

The U.S. experienced a similar uptick in inflation last month, as its annual rate rose to 3.2 per cent, up from 3.0 per cent in June.

Porter said although lower gasoline prices have driven the decline in inflation over the last year, rising prices may start to add to inflationary pressures.

“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,” Porter said.