Canada Inflation Research Brief

Inflation falls sharper than expected. In June, Canada’s inflation hit 2.8 per cent, down from the 3.4 per cent seen in May. Like previous months, the largest contributor to price increases was mortgage interest costs; if removed, this would have pushed inflation to the 2.0 per cent target. While the 2.8 per cent reading in June was still a promising outcome, as it is within the Bank of Canada’s target range of 1.0 to 3.0 per cent, it mainly reflects a fall in energy inflation. This was largely driven by strong base-year effects, given the Russian-Ukraine war elevating prices early last year. With the subsequent fall in energy costs driving most of this price deceleration, there is a possibility for inflation to rise above the Bank’s target range again in the near future as these yearly effects will be largely eliminated over the coming months. Still, when removing volatile CPI categories like food and energy, prices rose 3.6 per cent in June, down from the 4.0 per cent seen in May, which continues to indicate broad-based easing in inflationary pressures.