- The Consumer Price Index (CPI) rose 3.1% year-over-year in June, down from 3.6% in May and a touch below the median forecast of 3.2%.
- Gasoline prices, were again considerably higher than what they were a year ago (+32%), but were down from May (+43.4%) due to the recovery in prices in 2020. Food price inflation edged down to 1.3% (from 1.5% in May) as prices for fresh vegetables continued to trend lower. Excluding food and energy, inflation was 2.2% in June, down from 2.4% in May.
- Of the major components, shelter (+4.4%) and transportation (+5.6%) made the largest contribution to June’s price gains. Shelter costs were driven up by homeowners’ replacement costs which was up 12.9%. Meanwhile, the mortgage interest cost index fell 8.6% due to low interest rates. This was the steepest decline on record. Clothing and footwear also saw a significant slowdown in price growth in June, weakening to 1.1% from 3.9% in May. This comes as a result of lower prices for women’s clothing.
- On a seasonally adjusted basis, CPI increase 0.1% in June, slowing from the 0.4% gain in May.
- The Bank of Canada’s core inflation measures were broadly unchanged last month. CPI-Trim remained at 2.6%, CPI-Median edged up to 2.4% from 2.3%, and CPI-Common ticked down to 1.7% from 1.8%.
Key Implications
- Despite the cooling in June, price pressures are likely to rise in the months ahead. Further reopening of the economy is likely to fuel gains in categories that had seen muted inflation throughout the last year. At the same time, strains to the supply chain have not been fully alleviated and will continue to exert upward pressure on price growth. Firms have indicated an increased willingness to pass on higher input costs to consumers and with consumers able to absorb them, there is good reason to expect them to do so.
- As consumers settle into more stable spending-saving patterns and supply chain constraints are ironed out, price pressures should moderate. That said, there is a non-negligible risk that supply constraints prove longer lasting and demand runs hotter than expected. In that case, inflation expectations could rise meaningfully, presenting greater upside risk to the inflation outlook. The Bank of Canada will be monitoring signs on this front closely as it charts next steps for monetary policy.
