Key Takeaways
- Canada’s annual inflation decelerated to 2.8% in June from 3.2% in May, according to Statistics Canada.
- The dip was driven mainly by moderation in gasoline prices.
- A sustained retreat in core inflation measures suggests a longer Bank of Canada rate hold, analysts say.
Canada’s inflation slowed in June as gasoline prices fell. Core inflation measures, which strip out the most volatile price categories, also softened over the month, keeping broader inflation contained. While oil prices have climbed again in July, any renewed inflationary pressure will be muted as the price effects of the FIFA World Cup wane, allowing the Bank of Canada to hold rates through year-end, according to analysts.
Canada’s Consumer Price Index cooled to 2.8% in June from 3.2% in May, falling back to its April level, according to the latest Statistics Canada report. On a monthly basis, prices decreased by 0.4% in June for their largest monthly decline since December 2024.
Gasoline prices rose at a slower pace of 20.5% for the month, on hopes of an Iran war peace deal, after rising 33.2% in May. Goods and services tied to the 2026 FIFA World Cup were the other key contributor to June inflation—particularly traveler accommodation, which jumped 10.1% in June from 2.5% in May on a year-over-year basis.
The Bank of Canada’s preferred core measures of inflation, which exclude volatile categories such as gasoline, groceries, and rent, also fell for the month. June CPI-trim tapered to 1.8% from 2.0% the month before, while CPI-median ticked down to 1.9% from 2.1%. Month-over-month core CPI, which only excludes food and energy, saw a slight uptick to 1.8% from 1.6% in May.
The Bank of Canada is set to make its next interest rate announcement on Sept. 2. Economists expect the Bank to hold the rate steady at 2.25%, where it’s been since December 2025.
Following the report, the Canadian dollar slid 0.16% lower to C$1.40, or 0.71 US cents. The S&P/TSX Composite Index edged 0.26% higher to 35,335.89, while the Morningstar Canada Index ticked up by 0.24% to 6,305.79. Two-year government bond yields fell 0.02 percentage points to 2.84%.
June CPI Report Key Stats
- Month-over-month CPI declined 0.4% after rising 1.0% in May.
- On an annualized basis, CPI fell to 2.8%, from 3.2% in the prior month.
- CPI-trim retreated to 1.8% from 2.0% in May, while CPI-median slowed to 1.9% from 2.1%.
Here’s a closer look at analyst commentary on the June CPI report.
Easing Core Measures Support Bank of Canada’s Rate Hold
“While headline inflation remains above target, underlying pressures are subdued and slowing. There’s still some upside risk from oil/energy prices (gasoline prices are up slightly so far in July), but it’s clear that the output gap is weighing heavily on underlying inflation. This will keep the Bank of Canada comfortably on the sidelines, where we expect them to stay through at least the rest of this year.”
—Benjamin Reitzes, managing director, Canadian rates and macro strategist at BMO Economics
Fading FIFA Bump Will Offset the July Jump in Oil Inflation
“Headline inflation could well accelerate again next month to at least partly offset the deceleration seen in June, given that oil and gasoline prices have risen again. However, we expect underlying inflationary pressures to remain muted, and potentially even decelerate a little further in late summer/early fall as the temporary increases in some areas linked to the FIFA World Cup fade. The lack of any acceleration in underlying inflationary pressure will enable the Bank of Canada to remain on hold, allowing rates to be kept low enough to support the recovery that is underway within the Canadian economy.”
—Andrew Grantham, senior economist at CIBC Economics
With Core Inflation Contained, a Rate Hike Remains Unlikely
“The Bank of Canada will be pleased to see that core price pressures remained subdued last month, even with some FIFA World Cup-related boost. With Governing Council reiterating their willingness to look through higher energy prices at last week’s interest rate meeting, we are content in our view that rate hikes remain a long way off.”
—Bradley Saunders, North America economist at Capital Economics
Muted Price Pressures to Keep the Bank of Canada on the Sidelines
“After four months of oil supply disruption, Canadian inflationary pressures still look relatively muted. So, despite the recent spike in global oil prices, the Bank of Canada can rest easy that the pass-through to other goods and services remains very limited. As a result, we continue to see Canadian central bankers leaving rates on hold for the remainder of the year.”
—Royce Mendes, managing director and head of macro strategy at Desjardins Capital Markets
June Report Offers Little Evidence of Inflation Pass-through
“A pullback in headline inflation was widely expected in June with oil prices moving lower after surging earlier this year, but broader measures of price growth outside of energy prices also surprised on the downside.
“Measures of inflation breadth were also contained, with limited evidence that earlier increases in input costs had spread significantly across the CPI basket. Overall, June’s report was consistent with the Bank of Canada’s latest assessment that underlying inflation remains close to target. Although the path for headline inflation remains highly sensitive to unpredictable global developments, contained broader price pressures and firming economic growth support our view that the Bank will keep the overnight rate unchanged through the remainder of 2026.”
—Abbey Xu, economist at Royal Bank of Canada
The Worst of Inflation Is in the Rearview Mirror
“We expect the CPI headline number to not rise above 3 per cent in the coming months, with the core measures squarely at or below target. In this scenario, we believe the Bank of Canada will hold its key interest rate at 2.25% for the remainder of 2026 with a relatively accommodative stance to allow economic recovery—especially since core inflation has now fallen below 2%.
“July’s inflation will likely come in near 3 per cent. While energy and gasoline prices have risen since June, prices for travel-related services might decelerate as the World Cup-related hikes fade. Of course, uncertainty persists regarding energy prices due to the geopolitical situation in the Middle East—but the big picture is that the spike in inflation has peaked and likely passed.”
—Tu Nguyen, economist at RSM
Softening Prices Signal a Longer Rate Hold
“June’s inflation print came in a little cooler than expected. However, the rise in oil prices in recent weeks means that the downdraft from lower gasoline prices is likely to evaporate in July’s CPI. With oil prices remaining below recent highs, we still think inflation has peaked in Canada this year.
“Inflation remains very benign in Canada, as a relatively soft demand backdrop leans against sellers raising prices. Not surprisingly, the yield on the two-year Government of Canada bond is down a few ticks in the wake of the number. June’s inflation report reinforces our view that the Bank of Canada can remain on the sidelines for quite some time.”
—Leslie Preston, managing director and senior economist at TD Bank
