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The annual rate of inflation cooled to 2.8 per cent in June, marking a milestone in the Bank of Canada’s efforts to fight raging price pressures.
Statistics Canada said Tuesday that the slowdown in prices was “broad-based” but attributed most of the decline to a drop in gas prices compared to this time last year. Canadians continue to face high inflation at the grocery store, with prices rising 9.1 per cent annually in June.
The latest inflation reading comes a year after annual price pressures peaked at 8.1 per cent in June 2022. Canada’s inflation rate was 3.4 per cent in May.
The Bank of Canada’s target range for inflation is one-to-three per cent, but policymakers at the central bank have made it clear they will continue to keep pressure on prices until inflation returns back down to two per cent.
The central bank raised interest rates earlier this month, in part because of concerns that inflation would stay high for longer.
The Bank of Canada’s rate hikes are also feeding into higher inflation through mortgage interest costs.
The federal agency says that excluding mortgage interest costs, inflation would have risen two per cent year-over-year.
The central bank is expecting Canada’s inflation rate to hover around three per cent for the next year, before steadily declining to the two per cent target by mid-2025.
CIBC senior economist Andrew Grantham said in a note to clients Tuesday morning that Canada might retrace some of its progress in the months ahead as inflation will “likely creep back” above three per cent. Because much of the deceleration is tied to the higher gas prices of a year earlier, the impact of relatively lower prices will fall out of the annual consumer price index comparison in the months to come, he explained.
He also said that with little progress observed in the Bank of Canada’s preferred metrics tracking so-called “core inflation,” there is a “very real risk that interest rates could be raised again after the summer.”
— with files from The Canadian Press
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