Canadian Inflation Heated Up in July

Canadian inflation accelerated in July, with headline CPI rising to 3.0% y/y from 2.8% in June, slightly above expectations. The increase was driven mainly by higher gasoline prices and stronger travel-related costs, while food and shelter inflation continued to cool. Core inflation measures favored by the Bank of Canada held at an average of 2.0%, indicating underlying price pressures remain broadly contained. Market reaction was limited but short-term Government of Canada bond yields edged higher on the hotter print. The report suggests the BoC is unlikely to tighten policy based on this data alone, especially as tariff-related uncertainty from the U.S. remains a downside risk to growth. For USDCAD, the data is modestly supportive of the Canadian dollar in the near term only if it reduces easing expectations, but the broader policy backdrop remains balanced.