Is there a way to isolate my Google account to just the Play Store? I want to use the Google Play Store, so I need to login with my Google account. The moment you login, Android will store your Google account, so apps like Gmail can access it.

However, the Play Store is the one and only app I want to use my Google account with. I don't want Gmail or anything else to access or even know that I have a Google account.

Is there a way to isolate my Google account to just the Play Store? Is my only option to make a dummy Google account just for this device?

I'm running Android 7.0.
If you want to use the original Google Play Store there is no way to limit the Google Account to this service.

In case you loose the device, anyone who gets access to the device can install any Google app like GMail and then use it with the stored Google account used for the Google Play Store.

The only workaround is the one you already mentioned: Use a new Google account that is only used for Google Play Store.

Alternatively you could switch to a different app store or use a third party app that allows to download apps from Google Play Store (not sure if there is currently one that works).