Inflation cools to 2.8% as Canadians get break from rising gas prices
Tomas Kauer 
Canada’s inflation rate slowed to 2.8 per cent in June as falling gasoline prices gave consumers a break at the pumps.
On a monthly basis, gas prices dropped by 10.2 per cent, the largest monthly decline since April 2025, after an interim ceasefire agreement between the United States and Iran resulted in a drop in global oil prices.
Gasoline prices were still up 20.5 per cent compared to the same month last year, but rose more slowly than the 33.2 per cent jump registered in May.
Grocery inflation, meanwhile, decelerated in June, with prices rising by about 3.9 per cent compared with 4.3 per cent in May. The deceleration was driven by slower price growth in fresh fruit, mainly due to cheaper prices for grapes. Higher prices for chicken, bread and frozen foods offset part of that slowdown.
Despite the deceleration, June marked the 17th consecutive month in which grocery price inflation outpaced overall inflation. 
Other items contributing to the deceleration in inflation included passenger vehicles, whose prices rose 1.9 per cent year-over-year in June compared with 2.5 per cent in May.
Prices for travel-related services, however, rose after the FIFA World Cup kicked off. Traveller accommodation rose by 10.1 per cent year-over-year in June compared with a 2.5 per cent increase in May, driven by higher prices in Toronto and Vancouver as demand rose in host cities.
Core inflation measures remained relatively stable, with trim and median hovering at just under two per cent on a yearly basis in June.
Economists said June’s inflation rate was slightly cooler than the three per cent many expected, though most had forecast a decline.
“Overall, this is very much an energy price story, but we saw broad-based deceleration of inflation in June. Most categories saw year-over-year price gains slow relative to May, and that’s pretty positive,” said Randall Bartlett, deputy chief economist at Desjardins Group.
“It’s pretty good news for Canadian households when it comes to inflation in June.”
Bartlett said there is a risk that a rebound in global oil prices after the U.S.-Iran ceasefire agreement collapsed could push the inflation rate back up in July if gas prices climb in response.
However, he said core inflation continues to track “in the right direction,” which is welcome news for the Bank of Canada.
“We’re not close to the peaks that we were at (at) the height of the conflict, and, arguably, we’re not likely to see the kind of inflation that we saw back in May,” Bartlett noted.
“We’ve seen the Bank of Canada’s preferred measures of core inflation continue to track lower in June, and the three-month annualized rates slow even more sharply than the year-over-year numbers. While we could see a slight tick in July because of fuel prices, it could still be pretty positive news for policymakers.”
Food inflation will still be a sticking point for most Canadian households, however, especially for low-income households that are disproportionately affected by rising costs.
Abbey Xu, an economist for RBC Capital Markets, said raw commodities only represent a small portion of final food costs. Processing, labour and transportation costs are all factored into prices seen in the grocery store, and they remain some of the stickier components in the equation.
“That sort of explains why food prices aren’t falling,” said Xu.
“Lower-income households already spend a much higher share of income on food, which are considered essentials. It’s really hard to cut down on essential spending, and slow income growth creates squeezes which forces behavioural changes and drives up food bank usage as well.”
Both economists noted that the latest Consumer Price Index data will likely not change the Bank of Canada’s economic outlook, and they expect the central bank to continue to hold interest rates until the end of the year.
“We don’t think this report really changes our outlook for the Bank of Canada, and if anything, today’s report reinforces our view that the Bank of Canada can stay on hold because underlying inflation remains close to target,” Xu said.
• Email: ptran@postmedia.com
