(BSS/AFP) - The Middle East conflict drove up Canada`s annual inflation rate to three percent in July, data showed Monday, days before punishing new tariffs threatened by US President Donald Trump could further roil Canada`s economy.

Prime Minister Mark Carney said talks on averting those tariffs were at an "intense and delicate" stage, but declined to discuss details, insisting it was "not the time to talk about negotiations in public."

Monday`s inflation data from Statistics Canada pointed to elevated gasoline prices, which were up 25.7 percent compared to July 2025.

"The conflict in the Middle East, including the blockade of the Strait of Hormuz and the partial closure of Red Sea shipping routes in late July, put upward pressure on gasoline prices," the national statistics agency said.

June`s inflation rate was 2.8 percent.

Increased costs in tourism-related businesses, including air travel, also helped drive up prices, the agency said, with analysts pointing to elevated spending related to the World Cup, which Canada co-hosted.

While the three percent mark is at the upper edge of the central bank`s preferred inflation range, analysts said an interest rate hike to cool inflation was not likely any time soon, given the looming threats facing Canada`s economy.

US trade friction was already viewed as a major risk even before Trump threatened to hit Canada with new 50 percent tariffs on a range of goods from Wednesday.

- `Confidence shock` -

Canadian negotiators have been camped out in Washington seeking a deal to sideline the new tariffs while securing relief on a set of sectoral levies that have hammered Canada`s auto, steel, lumber and aluminum industries for months.

Canadian media reports indicate Ottawa has offered a range of concessions, including pressuring the provinces to put US alcohol and wine back on the shelves.

But it is not clear if a deal is imminent.

Pressed by reporters for details on how Canada might respond if Washington follows through with new tariffs, Carney said he expected to speak to Trump this week and had a plan "that will cover all eventualities."

TD Bank senior economist Leslie Preston said Monday`s inflation data won`t "spook" the Bank of Canada into raising rates, citing friction with Washington.

"Canada continues to deal with the confidence shock of on-again, off-again tariff threats from the US, which, given there is no deal as yet to avert the 50 percent tariffs set to come into effect on August 19, remains a clear downside risk to Canada`s economy," Preston said.