Canada’s annual inflation rate slowed to 2.8% in June on lower gas prices

Canada’s annual inflation rate dropped more than expected to a 27-month low of 2.8 per cent in June, data showed on Tuesday, but excluding energy prices inflation was still barely inching lower after 10 interest rate hikes in less than 18 months.

Analysts polled by Reuters had forecast inflation to drop to 3.0 per cent from 3.4 per cent in May. Month-over-month, the consumer price index was up 0.1 per cent, Statistics Canada said, which was also lower than the 0.3 per cent forecast.

June’s reading, which benefited from a comparison to the four-decade high inflation a year earlier, means the annual rate was within the Bank of Canada’s 1 per cent to 3 per cent control range for the first time since March 2021. The bank targets 2 per cent inflation.

“Inflation is definitely moving in the right direction, but we’re seeing stickier and more persistent core measures,” said Michael Greenberg, senior vice president and portfolio manager at Franklin Templeton Investment Solutions.

Excluding food and energy, prices rose 3.5 per cent compared with a 4.0 per cent rise in May. Grocery prices rose 9.1 per cent year-over-year in June, a tick higher than the increase recorded in May. Prices of food from restaurants slowed slightly in June from May.

The average of two of the Bank of Canada’s (BoC) core measures of underlying inflation, CPI-median and CPI-trim, came in at 3.8 per cent compared with 3.9 per cent in May.

The Bank of Canada last week raised rates to a 22-year high of 5.0 per cent and said it could hike them further if fresh data shows inflation is stalling above its target.

The central bank, citing excess demand, said last week that it expects inflation to remain around 3 per cent over the next year before dropping to the bank’s 2 per cent target by mid-2025, six months later than previously anticipated.

“We’re still not at 2 per cent,” said Jules Boudreau, senior economist at Mackenzie Investments. “So there’s still some work to be done. But policy is probably restrictive enough at the moment to do that.”

The price of gasoline, which led the slowdown, fell 21.6 per cent compared with June 2022 when China, the largest importer of crude oil, eased some COVID-19 public health restrictions that contributed to higher global demand.

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