Canada: Lower Energy Prices Helped to Slow Inflation in June

As was widely expected, total CPI inflation slowed in June on lower energy prices, as diplomatic talks and an interim ceasefire arrangement contributed to an easing of global oil prices during the month (graph 1). A sharp month-over-month drop in gasoline prices (-10.2% m/m) caused the year-over-year pace of growth in the price at the pump to slow (to 20.5% y/y from 33.2% in May). While gasoline prices remained elevated relative to pre-Iran conflict levels, June 2026 saw the largest month-over-month decline in gasoline prices since April 2025, when prices fell due to the removal of the consumer carbon tax.

Looking beyond the swings in energy prices, non-energy inflation remained stable in June, at 2.1% y/y. Most CPI categories saw the pace of year-over-year price growth slow (graph 2). Notably, food inflation cooled to a 3.5% pace in June, with prices of food purchased in stores decelerating to 3.9% from 4.3% in May. Transportation inflation also slowed in part due to diminishing gains in passenger vehicle costs and despite rising rental car prices coinciding with higher demand for travel. Meanwhile, the cost of recreation rose 4.3% in June from 3.2%, in large part because of rising prices of traveller accommodation due to the World Cup. This could also help to explain the acceleration in the price of alcoholic beverages in the month.

Turning to underlying inflation, the average of the Bank of Canada’s preferred measures of core inflation—CPI median and trimmed mean—edged lower in June to around 1.9% y/y from 2.1% in May (graph 3). Meanwhile, the annualized seasonally adjusted 3‑month moving average of the Bank’s preferred measures slowed from 2.2% in May to 1.6% last month. Other measures of underlying inflation are more mixed but hold far less weight in setting monetary policy.

The June inflation print was broadly a good news story for Canadian households. Lower energy prices were a big part of that, although the relatively broad-based slowing in the pace of gains also helped and suggest elevated energy prices haven’t yet begun to show up in other inflation categories. The slowing of the Bank of Canada’s preferred measures of core inflation in June is also positive for policymakers. As a result, we continue to see Canadian central bankers leaving rates on hold for the remainder of the year.