Canada’s annual inflation rate fell to 2.7 per cent in June — down from 2.9 per cent in May — mostly due to slower increases in gasoline prices, Statistics Canada said on Tuesday.
Compared to June of last year, gasoline prices rose an average of 0.4 per cent in June. That’s down from a 5.6 per cent annual increase in May.
The inflation rate for groceries also accelerated for the second month straight to 2.1 per cent, after mostly falling since January of last year, when prices rose 11.4 per cent annually.
Price growth accelerated for some types of food, like fresh vegetables, dairy and non-alcoholic drinks.
These inflation numbers are the last to be released before the Bank of Canada decides whether to change its key interest rate on July 24.
“The inflation data for June gave the Bank of Canada what it needed in order to cut interest rates at next week’s meeting,” said CIBC economist Katherine Judge in an emailed statement.
Economists from RBC and consultancy firm RSM Canada also expect the Bank of Canada to make another rate cut.
In June, the central bank made its first rate cut since March 2020, lowering it to 4.75 per cent.
It will take some time to see lower mortgage interest costs after rate cuts, Judge said in an interview.
“What you’ll see is drops in variable-rate mortgage interest costs and short-term mortgage interest costs as those mortgages renew,” she said. However, those decreases will be partially offset by “mortgages from 2020 and 2021 that are actually still renewing at higher costs.”
Interest rate cuts could also help relieve pressure on rent price growth, Judge said. “As interest rates come down, you’ll get fewer people going into the rental market and instead being able to go into the home-buying market.”
Since February 2021, rent inflation has been on an upward trend in Canada. Rents rose 8.8 per cent on average in June compared to last year.