Canadian Inflation Hits 3.0%, Driven by Gasoline Prices

Canadian inflation rose to 3.0% year-over-year (y/y) in July, exceeding market expectations of 2.9%. The increase was largely driven by higher gasoline prices, which increased by 25.7% y/y. In contrast, grocery prices cooled further, rising 3.1% y/y compared to June's 3.9%.

Shelter inflation also decreased, reaching 1.3% y/y from 1.5% in June, due in part to a decline in homeowners' replacement costs of 2.1%. Services inflation, however, ran hotter at 2.5% y/y, primarily due to increased travel-related costs.

The Bank of Canada's preferred core inflation metrics (median and trim) averaged 2.0% in July versus 1.9% in June. TD Bank Financial Group expects these measures to drift above 2% in the coming months as higher energy costs are passed through to other prices.