Canada’s annual inflation rate cooled more than expected to 2.8 per cent in June, according to data released by Statistics Canada, as gasoline costs fell sharply following the signing of a memorandum of understanding between the United States and Iran. The reading came in below the 2.9 per cent forecast by analysts polled by Reuters and represented a significant decline from the 29-month high of 3.2 per cent recorded in May. The moderation in inflation has been welcomed by economists and policymakers alike, as it suggests that the Bank of Canada’s efforts to bring inflation under control are beginning to bear fruit. The central bank projects that inflation will ease to about 2½ per cent in the second half of 2026, reaching the 2 per cent target by early 2027.
Gasoline prices were the biggest contributor to the easing in the inflation rate, with the cost of fuel purchased at the pump falling by over 10 per cent in June. On a year-over-year basis, gasoline costs rose at a rate of 20.5 per cent in June, down from a rise of 33.2 per cent in the prior month. Excluding gasoline, the Consumer Price Index was unchanged in June compared with May, at 2.2 per cent. The decline in gasoline prices reflects broader trends in global energy markets, including the geopolitical developments that have influenced oil prices. However, the war in the Middle East has since flared up again, and gasoline costs have started inching up, suggesting that inflationary pressures may persist.
Transportation costs, which account for around 18 per cent of the CPI basket, rose by 6.7 per cent in June on an annual basis. Other items in the basket that grew at more than 3 per cent were food, which rose by 3.5 per cent in June, and the recreation, education and reading category, which increased by 3.8 per cent. However, the rise in grocery prices cooled slightly, with the cost of food purchased from stores rising by 3.9 per cent on an annual basis last month, down from 4.3 per cent in May. June was the 17th consecutive month that grocery price inflation outpaced the all-items CPI, reflecting the persistent pressure that food costs have placed on Canadian households.
