The rise in consumer prices decelerated again in June, but costs for shelter and food are still putting a strain on Canadians’ wallets, evidence that bringing inflation down to target remains a tricky balancing act for the Bank of Canada.

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Inflation cools to 2.8% in June, but food and mortgage costs up sharply Back to video

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The consumer price index (CPI) was up 2.8 per cent last month, Statistics Canada reported on July 18, falling a couple ticks below the three per cent increase economists surveyed by Bloomberg had expected. That was down from 3.4 per cent in May and marked the first time the inflation rate has fallen within the central bank’s target control range of one to three per cent since March 2021.

The decline was driven by a 21 per cent drop in gasoline prices for the month, which was largely the result of base-year effects; last year, prices at the pump shot up amid increasing global demand for crude oil.

In June 2022, inflation hit its peak above eight per cent and has come down as the central bank hiked interest rates at almost every policy meeting since March last year — taking a brief pause in March and April this year.

“Inflation has fallen into the Bank of Canada’s target range, but there are signs pointing to slower progress from this point on,” Royce Mendes, economist and managing director at Desjardins Capital Markets, wrote to clients in a note July 18.

Discounting gasoline, the headline inflation figure would have been four per cent in June, down from 4.4 per cent in May. Statistics Canada said elevated grocery prices, up 9.1 per cent, and mortgage interest costs, up 30.1 per cent, contributed the most to the overall increase of 2.8 per cent.

Canadians paid 14.7 per cent less for cellular services, which had dropped 8.2 per cent in May. Cellphone bills, meanwhile, were down 7.6 per cent.

Travel tour prices rose 6.8 per cent, down from 23.4 per cent gains in May, part of the normal seasonal pattern leading up to peak vacation season in July, Statistics Canada said.

Prices for vehicles also rose more slowly, up 2.4 per cent as opposed to the 3.2-per-cent rise in May.

On July 12, the Bank of Canada raised the overnight policy rate to five per cent, the highest level since April 2001, and governor Tiff Macklem emphasized that Governing Council has become concerned about the persistence of underlying inflation pressures in its fight to bring supply and demand back into balance. The bank’s preferred measures of inflation, the trim and median rates, dropped in June but remain above the target band at 3.7 and 3.9 per cent, respectively.

Core inflation measures are calculated to provide a better gauge of underlying, domestic inflationary pressures. The three-month average of the two core numbers ticked up to 3.9 per cent and a newly introduced “super core” measure was 4.8 per cent, Royal Bank of Canada economist Claire Fan said in a client note.

The numbers underline the difficulty faced by the central bank in bringing prices down, said Leslie Preston, senior economist at Toronto-Dominion Bank.

“The June inflation data likely provides some reassurance that things are moving in the right direction, but not fast enough for the Bank of Canada to let its guard down,” Preston wrote to clients in a note.

Five per cent could be the peak for interest rates, but strong economic growth and a rebound in the housing market could complicate matters heading into the next policy meeting in September.

In its July Monetary Policy Report, the Bank of Canada said it expected inflation to return to target in the middle of 2025, six months later than what it forecast in April.

“We continue to expect the full impact of rate hikes to-date to come through gradually, slow spending over the second half of this year and for that to push the central bank back on the sidelines with no additional interest rate hikes this year,” Fan said.

• Email: bbharti@postmedia.com | Twitter: biancabharti