Canada Inflation Cools to 2.8% in June

Statistics Canada's Consumer Price Index rose 2.8% year over year in June, cooling from a 3.2% increase in May, the agency reported Monday. On a seasonally adjusted monthly basis, the CPI actually fell 0.1%. The deceleration was driven almost entirely by energy: gasoline prices dropped 10% month over month, unwinding much of the spring run-up that had been tied to the earlier phase of the US-Iran conflict.

That gasoline relief traces back to a tentative peace agreement between the United States and Iran reached earlier in June, which took pressure off global oil prices for several weeks. Strip out gasoline, however, and the picture looks less dovish: core inflation held steady at 2.2% year over year from May to June, unchanged and still running above the level the Bank of Canada would like to see once energy volatility is set aside.

Regionally, price growth was uneven. Ontario posted the smallest year-over-year increase at 2.0%, helped by slower growth in restaurant prices, while Nova Scotia led the country at 4.7% on the back of higher travel accommodation costs. FIFA World Cup matches hosted in Toronto and Vancouver pushed accommodation and rental-car prices up roughly 20% year over year in Ontario and British Columbia during June.

The report lands five days after the Bank of Canada held its policy rate at 2.25% for a sixth straight meeting on July 15, citing rebounding second-quarter growth near 2.5% alongside May's gasoline-driven inflation spike. The central bank's next decision is September 2. With oil prices climbing back above $90 a barrel in July on renewed US-Iran fighting, the gasoline relief captured in this June reading could prove short-lived, keeping the path to the Bank's 2% target uneven heading into the fall.