Canada’s annual inflation rate slowed more than expected to 2.8% in June from 3.2% in May, while headline CPI fell -0.4% on the month, marking the largest monthly decline since December 2024. The moderation was driven primarily by gasoline prices, which remained elevated from a year earlier but rose at a much slower annual pace than in May as easing oil prices during June weighed on pump prices. Gasoline prices fell -10.2% on the month, helping pull headline inflation lower despite continued geopolitical tensions in the Middle East.
Underlying inflation also softened. CPI Median eased to 1.9% year-on-year from 2.1%, while CPI Trimmed slowed to 1.8% from 2.0%, both undershooting market expectations. Common CPI edged down to 2.6% from 2.7%, although it remained slightly above consensus. Excluding gasoline, headline CPI was unchanged at 2.2% year-on-year, indicating that broader price pressures remained relatively contained even as energy prices continued to exert outsized influence on the headline figure.
The report should reinforce expectations that Bank of Canada can maintain a patient approach to policy. While geopolitical risks continue to cloud the inflation outlook through energy markets, June’s data suggest the earlier oil-driven price surge did not generate broader second-round inflation pressures. With both headline and core inflation measures moving lower, policymakers are likely to remain focused on whether easing energy prices can continue to offset the risk of renewed volatility should tensions in the Middle East escalate again.
Economic Data
| Indicator | Actual | Expected | Previous |
|---|---|---|---|
| CPI M/M | -0.4% | -0.2% | 1.0% |
| CPI Y/Y | 2.8% | 2.9% | 3.2% |
| CPI Median Y/Y | 1.9% | 2.1% | 2.1% |
| CPI Trimmed Y/Y | 1.8% | 2.0% | 2.0% |
| CPI Common Y/Y | 2.6% | 2.5% | 2.7% |
Market Takeaways
- Headline inflation slowed more than expected, helped by a sharp decline in gasoline prices during June.
- Monthly CPI posted its largest decline since December 2024, indicating easing energy price pressures outweighed gains elsewhere.
- Both CPI Median and CPI Trimmed undershot expectations, reinforcing the moderation in underlying inflation.
- Excluding gasoline, inflation held steady at 2.2%, suggesting broader price pressures remain relatively contained.
- The report supports a patient Bank of Canada stance, although the inflation outlook remains sensitive to renewed volatility in global oil prices.
