Canada’s annual inflation rate dropped to 2.7% in June, primarily due to slower growth in gasoline prices, according to Statistics Canada. Gasoline prices increased by 0.4% in June, a significant slowdown compared to the 5.6% rise in May. Without considering gasoline, the consumer price index increased by 2.8% in June.
In May, the annual inflation rate was 2.9%. Statistics Canada noted that the decrease in durable goods prices, which fell by 1.8% year-over-year in June following a 0.8% decline in May, also contributed to the overall slowdown.
CIBC senior economist Katherine Judge remarked that the June inflation data provided the Bank of Canada with the justification needed to consider an interest rate cut at the upcoming meeting. She highlighted that core inflation, excluding the more volatile food and energy prices, increased by 0.2% on a seasonally adjusted basis, down from the 0.3% rise observed the previous month. Judge interpreted this as an indication that the prior month’s higher-than-expected inflation was an anomaly in an ongoing trend of disinflation, as economic demand remains weak.
Grocery prices rose by 2.1% year-over-year in June, up from a 1.5% increase in May. This marks the second consecutive month of accelerating growth in grocery prices. Despite this, BMO’s Benjamin Reitzes, managing director of Canadian rates and macro strategy, noted that the level of food price growth remains relatively moderate and consistent with historical patterns. However, he cautioned that a continued upward trend in food prices could become concerning, given their significant impact on inflation perceptions.
In June, fresh vegetable prices increased by 3.8%, dairy products by 2%, preserved fruits and fruit preparations by 9.5%, and non-alcoholic beverages by 5.6%. Fresh fruit prices, on the other hand, decreased by 5.2%, following a 2.8% drop in May, helping to moderate overall grocery price increases.
The June inflation report is the final one before the Bank of Canada’s next interest rate decision on July 24. Earlier this month, the central bank reduced its benchmark interest rate by 0.25 percentage points to 4.75%. The report indicates that Canadian consumers are becoming more cautious with discretionary spending, with noticeable declines in recreation and clothing expenditures. Additionally, shelter spending showed unusual softness, with rent increasing by just 0.1%, the smallest rise in nearly two years.
