- CPI was up +0.7% from a year ago from -0.4% in May
- ‘Core’ measures edged higher
- Price growth still low – and low demand to keep lid on inflation going forward
A large chunk of the rise in the headline inflation rate came from a bounce-back in gasoline prices as oil prices continued to recover. Gasoline prices were still down almost 16% from a year ago, but that was less than the 30% year-over-year drop in May. Price growth for food continued to run substantially higher than overall inflation at +2.7% year-over-year, albeit down slightly from May’s 3.1% rise. Beef prices surged a whopping 8.3% in June due to COVID-19-related processing plant closures. Sharply lower chicken prices provided some offset. Mortgage costs also declined alongside falling interest rates.
The higher cost of food – at a time when household purchases of food (from stores) has been taking up a larger share of household incomes is probably a large part of the reason household inflation expectations were stronger than business expectations in Bank of Canada surveys earlier this month. And Statistics Canada report that accounting for shifting household consumption patterns, measured CPI would have been slightly less-weak than the headline index actually was in April and May.
Core price measures also ticked higher, on balance, although all 3 of the Bank of Canada’s preferred measures (trim, median, and common CPI) held below the central bank’s 2% price target. And near-term economic data has looked significantly better in Canada – including increases in restaurant sales in May (+35%) and manufacturing sales in June (17%) reported separately this morning. But the economic downturn in April was also exceptionally large – and virus spread in the US (and early signs of a tick higher in regions of Canada as well) still mean that the economy is likely to run well-below long-run capacity limits for the foreseeable future. That should ultimately keep underlying inflation pressures muted, and leave the Bank of Canada free to leave interest rates exceptionally low.
