Inflation cools to 2.8% in June, falling within Bank of Canada target

The rise in consumer prices decelerated again in June largely due to a drop in gasoline prices, but costs for shelter and food are still putting a strain on Canadians’ wallets, evidence that bringing inflation down to target will be a tricky balancing act for the Bank of Canada.

The consumer price index rose 2.8 per cent last month, Statistics Canada reported on July 18, falling a couple ticks more than the three per cent increase economists surveyed by Bloomberg had expected.

Base-year effects were a leading cause for gasoline prices dropping more than 21 per cent for the month; last year, prices at the pump shot up amid increasing global demand for crude oil.

Discounting gasoline, the headline inflation figure would have been four per cent in June, down from 4.4 per cent in May. Statistics Canada said elevated grocery prices, up 9.1 per cent, and mortgage interest costs, up 30.1 per cent, contributed the most to the overall increase of 2.8 per cent.

“Inflation has fallen into the Bank of Canada’s target range, but there are signs pointing to slower progress from this point on,” Royce Mendes, economist and managing director at Desjardins Capital Markets, wrote to clients.

The Bank of Canada has been fighting price growth with successive interest rate increases, bringing the overnight policy rate up to five per cent on July 12.

But price pressures remain persistent as the central bank’s preferred inflation measures remain above the target range of one to three per cent, Mendes said.