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Inflation slows to 2.8% in Canada in June, within Bank of Canada's target range
Alicja Siekierska
Alicja Siekierska
Tue, July 18, 2023 at 8:33 a.m. GMT-4·3 min read
TORONTO ON-June 26.Gas prices surged back up above two dollars a litre in the GTA again after a week below the high water mark price.  (R.J. Johnston/Toronto Star)        (R.J. Johnston/Toronto Star via Getty Images)
Canada’s annual inflation rate slowed to 2.8 per cent in June. (R.J. Johnston/Toronto Star via Getty Images)
Canada’s annual inflation rate slowed to 2.8 per cent in June, according to Statistics Canada, but Canadians continue to face price pressures as rising food prices and mortgage interest costs push ever higher.

The rise in the Consumer Price Index (CPI) was down from a 3.4 per cent increase in May, and brings it in line with the Bank of Canada's previous forecast that inflation would ease to around 3 per cent by mid-year. It marks the first time in 27 months that annual headline inflation was within the central bank's target range of between one and three per cent.

On a monthly basis, CPI increased 0.1 per cent in June. Seasonally adjusted, the increase was also 0.1 per cent.

Base-year effects in gasoline prices drove the slowdown in CPI, with prices falling 21.6 per cent year-over-year. Statistics Canada said the annual decrease was a result of elevated prices last year as China started to ease some COVID-19 health restrictions. On a monthly basis, Canadians paid 1.9 per cent more for gas than they did in May.

Food prices continue to push stubbornly higher and remain one of the largest contributors to inflation, Statistics Canada said. The cost of food purchased from grocery stores increased 9.1 per cent annually in June, up from 9 per cent in May. The biggest contributors to the increase in food prices were the cost of meat (up 6.9 per cent), bakery products (up 12.9 per cent), dairy products (up 7.4 per cent) and other food preparations (up 10.2 per cent). The cost of fresh fruit jumped 10.4 per cent, in part because of a 30 per cent month-over-month increase in grape prices.

But Canadians did see some price relief in June, with Statistic Canada calling the deceleration "fairly broad-based." Cell phone prices fell 14.7 per cent annually in June, following an 8.2 per cent annual decline in May. Internet prices also dropped 3.2 per cent annually in June, after rising 1 per cent annually in May.

The slowdown in inflation comes shortly after the Bank of Canada hiked its benchmark interest rate by a quarter-point, bringing it to 5 per cent. But the central bank predicted it will take even longer for inflation to return to 2 per cent.

Royce Mendes, managing director and head of macro strategy at Desjardins, said shortly after the release Tuesday that while inflation has fallen into the central bank's target range "there are signs pointing to slower progress from this point on."

"The Bank of Canada’s preferred measures of core inflation, which exclude significant moves in individual categories, shows that underlying price pressures remain sticky," he wrote in a research note.

"There’s scope for headline inflation to reaccelerate in the months to come as some of the recent progress can be chalked up to one-off moves lower in prices."

Economists surveyed by Bloomberg had expected inflation to fall to 3 per cent year-over-year in June.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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