Canadian inflation eased in June, with the Consumer Price Index (CPI) slowing to 2.8% year-over-year, according to Abbey Xu of the Royal Bank of Canada (RBC) [1]. Energy prices, which had surged earlier in the year, reversed part of their gains, contributing to the pull-back in headline inflation. Notably, broader measures of price growth outside of energy also surprised on the downside, with CPI excluding food and energy remaining below target [1].
The Bank of Canada's preferred underlying inflation measures, CPI-trim and CPI-median, both dipped below 2% in June [1]. Measures of inflation breadth were also contained, with limited evidence that earlier increases in input costs had spread significantly across the CPI basket [1]. This data aligns with the Bank of Canada's latest assessment that underlying inflation remains close to target levels [1].
RBC's analysis suggests that, despite the path for headline inflation being highly sensitive to unpredictable global developments, the contained broader price pressures and firming economic growth support expectations that the Bank of Canada will keep the overnight rate unchanged through the remainder of 2026 [1].
CONCLUSION
June's inflation data indicates that price pressures in Canada are moderating, with key underlying measures falling below 2%. This supports RBC's view that the Bank of Canada is likely to maintain its current policy rate through 2026, barring significant global shocks.