Statistics Canada says the annual rate of inflation slowed in June, but renewed pressures are showing up at the grocery store.
The agency’s consumer price index (CPI) reported an annual inflation rate of 2.7 per cent in June. That follows an uptick to 2.9 per cent in May.
Relief in gasoline prices were cited as the main reason for the annual decline. Gas prices were down 3.1 per cent month-to-month, the second consecutive month of lower prices at the pump.
Prices for travel tours were also down 11.1 per cent on a monthly basis, while cellular service costs fell 12.8 per cent annually.
Many durable goods saw outright price declines in the annual CPI, StatCan noted.
Passenger vehicle prices were down 0.4 per cent year-over-year, marking the largest annual decline since February 2015. Used vehicles in particular drove the cooling in this segment, with improved inventory levels driving down prices 4.5 per cent year-over-year following a rapid run-up during the COVID-19 pandemic.
Easing supply chains also helped the price of furniture fall 3.9 per cent annually in June, StatCan said. The agency also pointed to higher interest rates reining in consumer spending, with dwindling demand potentially driving prices lower.
But the pace of price hikes at the grocery store picked up for the second month in a row, rising 2.1 per cent year-over-year. On a three-year basis, grocery prices are up 21.9 per cent.
Price hikes were accelerating for dairy products (up 2.0 per cent), fresh vegetables (up 3.8 per cent) and non-alcoholic beverages (up 5.6 per cent), as well as preserved fruit and fruit preparations (up 9.5 per cent). Shoppers looking to save money on fruit might’ve gone to the fresh section, however, where prices were down 5.2 per cent annually.
Shelter prices were also up 6.2 per cent year-over-year, but this represents a step down from 6.4 per cent in the month before.
How will the Bank of Canada react?
The Bank of Canada will be closely scrutinizing June inflation figures as the central bank prepares for its next interest rate decision on July 24.
Bank of Canada governor Tiff Macklem has said it’s “reasonable” to expect further interest rate cuts as long as inflation continues to cool according to the central bank’s forecasts.
Economists who spoke to Global News ahead of Tuesday’s inflation release said that with signs of easing in the labour market and expectations from businesses that sales will be rough in the months ahead, the June price figures would have the final say on whether the Bank of Canada delivers back-to-back rate cuts.
Katherine Judge, director of economist at CIBC, said in a note to clients Tuesday that the June CPI print indeed sets the central bank up for another cut. The Bank of Canada’s closely watched measures of core inflation showed signs of easing on a monthly basis, she noted, which can help monetary policymakers look through the inflationary uptick in May.
“This shows that the prior month’s upside surprise in inflation was just a blip in a broader trend of disinflation as demand in the economy remains under pressure, paving the way for a (Bank of Canada) cut next week,” she wrote.
Financial markets on Tuesday advanced their bets for a rate cut at the central bank’s July 24 rate announcement to 88 per cent from 82 per cent previously, according to Reuters.
James Orlando, senior economist at TD Bank, agreed in a note that recent data releases point towards a cut. But he also said that services inflation was continuing to drive the CPI basket higher as consumers keep spending on “nice-to-haves” like dining out, and that longer trends in core inflation remain elevated.
Beyond parsing the monthly figures for signs of a rate cut next week or next month, Orlando said the economic tea leaves are still pointing to lower borrowing costs over the long term.
“From our view, the story hasn’t changed. The (Bank of Canada) is in a cutting cycle,” he wrote.
“Whether or not it follows through with a slightly quicker pace of cuts next week, Canadians should expect rates to be steadily reduced over the rest of this year and next.”
— with files from Reuters
More to come…