- Canada's annual inflation rate cooled to 2.8% in June from a 29-month high of 3.2% in May, as gasoline costs fell sharply.
- Gas prices fell 10% from May, contributing to the overall decline in inflation.
- Core inflation measures also dipped below 2%, with CPI-trim at 1.8% and CPI-median at 1.9%.
- The Canadian dollar weakened against the U.S. dollar as inflation eased, reducing expectations for interest rate hikes.
- Core inflation measures closely watched by the Bank of Canada also eased, indicating a cooling inflation environment.
- Food inflation eased to 3.9% in June, down from 4.3% in May, reflecting a broader trend of declining price pressures.
- Financial market odds for another interest rate hold from the Bank of Canada stood at more than 90% following the inflation report.
Canada's annual inflation rate dropped to 2.8% in June, down from a 29-month high of 3.2% in May, primarily due to a 10% decrease in gasoline prices. This decline has eased pressure on the Bank of Canada regarding interest rate hikes, with market expectations for a hold exceeding 90%.1
Gasoline prices fell 10% from May, while other fuel prices declined 6.3%, partially reversing earlier increases. Despite this, gasoline remains significantly more expensive than a year ago, impacting household purchasing power.
CPI excluding food and energy remained below target, with the Bank of Canada’s preferred measures, CPI-trim and CPI-median, dipping to 1.8% and 1.9% respectively.
RBC assistant chief economist Nathan Janzen noted that the monthly inflation data can be volatile, but the dip is 'meaningful.' TD Bank's Leslie Preston suggested that while rising gas prices in July may reverse June's decline, she believes inflation has peaked for 2026.2
The Bank of Canada has maintained its key interest rate at 2.25% for six consecutive meetings, aiming to keep inflation within a target range of 1% to 3%.
Overall, June's report aligns with the Bank's assessment that underlying inflation remains close to target, with chances of a rate hike easing to 66% from 72% prior to the report, according to swap market data.
“Core inflation measures CPI-trim and CPI-median dipped below 2% for the first time since December 2020, while food inflation eased to 3.9%. The Canadian dollar weakened to 1.4060 per U.S. dollar as expectations for further rate hikes diminished.”
Global News
The Globe and Mail
