Canada’s inflation goes down to 3.1% in June

Last month, Canada’s inflation showed the first slowdown for 2021. However, price pressures keep showing the strongest levels in almost a decade.

According to Statistics Canada, the consumer price index rose by 3.1% from June 2020, which almost coincides with 3.2%, predicted by economists in a Bloomberg poll.

The numbers went down from May’s 3.6% gain, but they still exceed the central bank’s control range of 1-3%. At the same time, more restrained prices growth supports the Bank of Canada’s statements about the recent inflation gains being only a temporary phenomenon. Nevertheless, policy makers believe the inflation will reach about 3.9% in the third quarter, marking the largest number since the early 2000s.

“The BoC was not caught by surprise, as it had changed its inflation forecasts in the last Monetary Policy Report,” – Jimmy Jean, chief economist at Desjardins Securties Inc., noted. “After so many months of assuring that base-year effects will wane, it will be a relief for the Bank to see the prediction coming to life without any offsetting interference.”

The national currency and the yields on government bonds didn’t react significantly to the report. The Federal Reserve policy decision will be revealed later on Wednesday.

The prices were up by 0.3% from May, while experts predicted a 0.4% increase. Meanwhile, the average core inflation was 2.23% (almost unchanged from the previous month).

June’s inflation growth was mostly supported by higher transportation and housing prices, reflecting the on-going strength in rental and new home markets. Shelter costs were up by 4.4% annually, marking the fastest gain since 2008. In addition to it, supply-chain challenges are pushing up prices for cars and household appliances, as they were strongly affected by a global lack of semiconductor chips.

According to the Governor Tiff Macklem, the supply chain problems will be improving in the nearest future. However, with massive reopenings in Canada and high vaccination rates, analysts believe there is a possibility that inflation growth may be more broad-based and long-lasting due to strong demand.

Last month’s results also reflect an importance of new basket of goods introduced by Statistics Canada in order to account for changes in spending preferences over the pandemic.