Lower gas prices pushes down Canada’s inflation rate to 2.8% in June

Canada’s inflation rate eased to 2.8 per cent in June, as gas prices eased, according to Statistics Canada.

Statistics Canada reports that inflation fell 0.4 per cent, down to 2.8 per cent in June from 3.2 per cent in May.  However, inflation was unchanged from May to June when gas prices are taken out of the equation. 

Price hikes at the grocery store also eased to 3.9 per cent in June, down from 4.3 per cent in May. Costs for fresh fruit grew at a slower pace, according to the data agency, especially for grapes. 

Prices of some grocery items accelerated

However, prices for some grocery items accelerated like fresh or frozen chicken, which rose by 5.7 per cent, and bread, rolls and buns, which were up 6 per cent. Chief Economist at Servus Credit Union, Charles St-Arnaud says it’s possible that Canadians have been replacing beef with chicken, as prices for that protein have risen dramatically since 2021.

This could have created more demand for chicken and resulted in higher prices, St-Arnaud expects. Prices for travel-related expenses also surged as the World Cup kicked off. The cost of traveller accommodation was up around 20 per cent year-over-year in Ontario and British Columbia, mainly in host cities Toronto and Vancouver last month.

Higher oil prices due to the war between the U.S. and Iran have sent the cost of gas up in recent months and helped pull the inflation rate higher in May to 3.2 per cent. However, the ceasefire and diplomatic talks last month helped ease oil prices, leading to a 10.2 per cent drop in the cost of gas month-over-month.

International factors

Since then, tensions have risen after the memorandum of understanding between the countries collapsed, and pump prices have climbed again as a result. At the same time, Ukrainian strikes on Russian oil infrastructure have also put pressure on the supply of refined oil products, including fuel.

Air transportation costs also rose 9.6 per cent annually due to higher jet fuel prices and increased domestic travel demand, marking the largest increase since February 2023. BMO Economics managing director Benjamin Reitzes noted that core measures of inflation that strip out more volatile metrics were lower than expected. 

“While headline inflation remains above target, underlying pressures are subdued and slowing,” Reitzes wrote in a note to investors. Given that, he expects the Bank of Canada to stay “comfortably on the sidelines” for the rest of the year. 

Last week, the central bank left its key lending rate unchanged at 2.25 per cent. The central bank signalled at the time that there were few signs that price pressures from the Iran war were spilling over into broader inflation.

But with gas prices on the rise again, St-Arnaud says headline inflation could tick back up a bit in the coming months.