Consumer price inflation cooled to 2.8% year-on-year (y/y) in June, down from 3.4% in May. That was slightly below market expectations.
Lower energy prices, gasoline primarily, relative to a year ago were the key downward force on inflation. Without the effect of gasoline prices being down -21.6% versus a year ago, headline inflation would have been 4.0% y/y in June.
The components contributing the most upward pressure to inflation are groceries (+9.1% y/y) and mortgage interest costs (+30.1% y/y). Food prices at stores have risen nearly 20% over the past two years, the largest such increase in over 40 years.
Shelter inflation heated up very slightly to 4.8%in June, up from 4.7% in May. Even so, total services inflation cooled further to 4.2% y/y from 4.8% y/y in May. Services inflation cooled thanks to smaller increases for travel tours (+6.8 y/y in June down from 23.4% y/y in May) and cellular services, which are down 14.7% y/y, versus a smaller 8.2% y/y decline in May.
There were signs of easing price pressures for consumer goods also. Durable goods inflation continued to cool to 0.8% y/y in June. Passenger vehicle prices were up 2.4% y/y in June, down from a peak of 8.4% last September. Household furniture and equipment was up only 0.1% y/y in June, down from a peak of 10.5% last June.
The Bank of Canada’s underlying inflation measures cooled further in May. CPI-trim eased to 3.7%y/y in June from 3.8% y/y in May, and CPI-median registered 3.9% versus 4.0% y/y in May.
Canadian inflation continued to make encouraging progress in June. However, the cooling in headline inflation is benefitting from sizeable base effects, due to the favourable comparison to high energy prices last June. The Bank of Canada (BoC) is watching its preferred core measures – CPI-trim and median – which continue to show glacial progress.
BoC Governor Macklem emphasized last week that the Bank has become worried about the persistence of underlying inflation pressures in the economy. The June inflation data likely provides some reassurance that things are moving in the right direction, but not fast enough for the Bank of Canada lets its guard down.