Consumer price inflation decelerated to just 1.0% (year-on-year) in June (from 1.3% in May) – a touch softer than the consensus forecast of 1.1%. Prices were flat on the month after seasonally adjusting.
Once again it was a goods story pulling down inflation. Goods prices were down 0.5% year-on-year, the biggest decline in over two years. Services inflation on the other hand accelerated to 2.4% y/y from 2.3% in May.
Falling energy (-1.3% y/y) and passenger vehicle prices (-0.2% y/y) weighed on the headline number, while food prices (+0.6% y/y) contributed positively to inflation for the first time in nine months.
Two of the Bank of Canada’s three core measures edged up on the month. CPI-median accelerated to 1.6% from 1.5%, while CPI-common was up to 1.4% from 1.3%. CPI-trim was unchanged at 1.2%.
Key Implications
The Bank of Canada’s decision to raise the overnight rate last week cited temporary factors restraining price growth. These were evident in June with gasoline, electricity, and passenger vehicle prices all weighing on the headline number.
The Bank of Canada was likely to see through this print, whatever it came in at. Having said that, the Bank did communicate that it expects the weakness in the core measures to firm, and the June data suggests a break from the several month downward trend. This may provide confidence that as slack diminishes, inflation should begin moving toward the 2% target.
