- After an upside surprise in May, inflation trends in Canada largely resumed lower in June with headline CPI dropping to 2.7% from 2.9%.
- The decline in headline inflation mostly reflected easing in energy CPI growth (to 0.5% year-over-year in June) following a 3% drop in gasoline prices month-over-month from May. That was enough to offset a rise in food inflation to 2.8% from 2.4% in May.
- June was the second month that growth in food prices accelerated. On a monthly seasonally adjusted basis, food prices rose at a 0.6% average rate in each of May and June, much faster than the -0.03% pace between January and April this year.
- Excluding food and energy, core CPI held unchanged at 2.9% year-over-year from May. Other “core” CPI measures that the Bank of Canada (BoC) pays close attention to, including CPI trim and CPI median both rose at a slower 0.2% (seasonally adjusted) in June. That leaves the yearly reading for CPI trim unchanged at 2.9%, and for CPI median slightly lower at 2.6%.
- The “supercore” CPI measure, i.e. BoC’s trim services ex-shelter index again rose by a larger 0.3% in June on a seasonally adjusted basis, matching the reading in May. That pushed the three-month annualized reading of the same measure higher to 3.4% in June from 3%.
- Nonetheless, from the BoC’s perspective the broader picture remains that inflation pressures are easing in Canada – the closely watched 3-month rolling average increases in the preferred core measures rose but that was following a string of earlier downside surprises so the 6-month rolling average continued to ease.
- On the goods side, persistent unwinding in global supply chain challenges and diminishing demand over the past years continue to feed through to lower goods inflation in Canada. In June, prices for durable goods were 1.8% below a year ago, driven by price drops in used cars (-4.5%) as auto inventory improves, and in furniture (-3.9%).
Bottom line: June’s CPI print was a small relief after an upside surprise in May, with headline inflation matching consensus expectation prior to the release. Bank of Canada’s preferred CPI trim and CPI median both dropped lower on a monthly basis although the narrower “supercore” measure held slightly higher. Yesterday’s second quarter release of the BoC’s Business Outlook Survey largely confirmed further normalizing in a few key areas that the central bank has deemed critical to future inflation trends, including firms’ pricing behaviour, their expectations for inflation in the future as well as wage growth. All told, we expect the BoC will carry on with easing the monetary brakes on a weak economy, and follow up with another rate cut at its July meeting next week.
This article was originally published by RBC Economics. Visit the website at https://thoughtleadership.rbc.com/rbc-inflation-watch/
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