Higher energy prices helped drive up the annual inflation rate to 2% in July, Statistics Canada said today.

Rising prices for gasoline as well as higher costs for natural gas were key factors in pushing the consumer price index above the 1.7% rate reported in June.

The rise in inflation makes it more likely that the Bank of Canada will begin to raise interest rates in early September.

The central bank’s target for core inflation at about 2%.

The core rate – which excludes many volatile food and energy prices – actually slipped a bit last month, to 1.4% from 1.5% in June.

The biggest factor behind the rise in July’s inflation rate was a 12.3% jump in gasoline prices compared with a year earlier.

The government agency said the cost of filling up has risen steadily this year, briefly pausing only in May.

Higher natural gas prices also added to increased cost of living in July.

A 10.7% jump in natural gas costs, compared with July 2004, was the largest increase seen since October 2002.

Increased energy prices were offset by a 23% drop in the cost of computer gear as well as price breaks on cars and trucks.