Consumer price inflation increased to 8.1% year-on-year (y/y) in June, up from 7.7% in May.
Gas prices were a main driver, with prices rising 6.2% month-on-month (m/m). Statistics Canada noted that “gas prices largely followed crude oil prices, which peaked in the first week of June with higher global demand amid the easing of COVID-19 public health restrictions in China.”
Car prices also contributed to the increase, rising 1.5% m/m, “as prices for new vehicles (+1.6%) and used vehicles (+1.3%) increased. Month over month, prices for new vehicles rose at a faster pace than the 0.1% increase in May, due, in part, to the higher availability of new model-year vehicles.”
Shelter saw a deceleration in price growth, up 4.5% m/m annualized (down from 8.5% last month). Lower commissions from real estate transactions and homeowners’ replacement cost contributed to this.
Seasonally adjusted, month-on-month prices were up 0.6% following a 1.1% gain in May. Excluding food and energy, the index was up 0.35%, slowing from 0.64% in May.
All three of the Bank of Canada’s core inflation metrics held steady in June. CPI-trim rose 0.1 percentage points (pps) to 5.5%, CPI-common by 0.1 pps to 4.6%, and CPI-median was flat at 4.9%.
Key Implications
High inflation continues to be the biggest risk to the economic outlook. Though the rise in the yearly rate of inflation is going to grab headlines, there was a meaningful deceleration in the monthly numbers, with most categories showing less monthly price pressure. Looking forward, we hope to see a continued deceleration in the monthly numbers, as gas prices are set to be a significant downward force in the July print. Even still, this should keep the year-on-year numbers uncomfortably elevated through 2022.
The Bank of Canada (BoC) is set to continue hiking its policy rate at an aggressive clip when it meets again in September. Markets are expecting upwards of 75 basis points from the BoC at its next meeting and see the policy rate ending the year between 3.5% and 3.75%. This has the Canada 10-year maintaining its support around 3% and CAD holding in at 77 U.S. cents.
