Canada’s inflation rate decreased to 2.8 percent in June due to a slowdown in gas prices, according to recent data from Statistics Canada. The surge in gas prices earlier was driven by higher oil prices resulting from the U.S.-Iran conflict, pushing inflation to 3.2 percent in May.
Following a period of ceasefire and diplomatic negotiations, oil prices stabilized, leading to a significant 10.2 percent decline in gas prices from the previous month. However, tensions escalated again after the breakdown of the understanding between the countries, causing pump prices to rise. Ukrainian strikes on Russian oil infrastructure also impacted the supply of refined oil products, including fuel, as explained by Joe Calnan, the vice president of energy at the Canadian Global Affairs Institute.
Excluding gas prices, inflation remained steady from May to June, according to Statistics Canada. In addition, the rate of price increases at grocery stores moderated to 3.9 percent in June from 4.3 percent in May. While prices for fresh fruit, particularly grapes, rose at a slower pace, certain grocery items such as fresh or frozen chicken (up by 5.7 percent) and bread, rolls, and buns (up by six percent) saw accelerated price growth.
Chief economist Charles St-Arnaud of Servus Credit Union suggested that the significant rise in beef prices since 2021 may have led Canadians to shift towards chicken, thereby boosting demand and causing prices to increase.
Moreover, travel-related expenses surged with the start of the World Cup, driving up the cost of traveler accommodation by around 20 percent year-over-year in Ontario and British Columbia, notably in host cities Toronto and Vancouver last month.
Statistics Canada reported a 9.6 percent annual increase in air transportation costs, attributed to higher jet fuel prices and increased domestic travel demand, marking the largest uptick since February 2023.
Benjamin Reitzes, managing director of BMO Economics, highlighted that core inflation measures excluding volatile metrics were lower than anticipated. He expects the Bank of Canada to maintain its current stance for the remainder of the year, as underlying inflationary pressures are subdued and decelerating.
While the Bank of Canada recently kept its key lending rate steady at 2.25 percent and downplayed inflation spillovers from the U.S.-Iran conflict, economist St-Arnaud cautioned that rising gas prices could lead to a slight uptick in headline inflation in the near future. Bank of Canada governor Tiff Macklem reiterated the central bank’s commitment to preventing persistent inflation resulting from high oil prices.