Annual rate of inflationary in Canada reached 8.1% in June as gasoline prices rose, Statistics Canada reported on Wednesday.
Gasoline prices rose 54.6% year-on-year and 6.2% month-on-month, contributing the most to the spike in inflation, the agency said.
Also in the transport basket, the price of passenger vehicles increased by 8.2% in June, the second biggest inflation driver in the previous month. Statistics Canada added used car prices to its consumer price index (CPI) calculations in May.
Meanwhile, food prices rose 8.8% year-on-year, the same increase month-on-month. Prices for services, including restaurant dining, room rental and accommodation for tourists, rose 5.2 percent.
In May, the inflation rate hit a 39-year high of 7.7%. While the latest reading topped the market at 8%, it fell short of consensus estimates that inflation hit 8.4% in June.
“It really says something as the 8.1% inflation rate is greeted with some sort of relief in financial markets because it’s not as dire as expected,” said BMO chief economist, Doug Porter wrote in a note.
Prices for temporary shelters fell slightly in June but were still up 7.1%. According to Statistics Canada, this marks the segment’s first monthly decline since August 2019, reflecting lower real estate commissions as housing prices fell due to rising interest rates.
Last week, the Bank of Canada raised key interest rates by one full percentage point in an attempt to slow soaring inflation. The rate hike was the biggest in more than 20 years.
Porter said Wednesday that he expects the central bank to raise rates again in September, but this time “more moderately” by half a percentage point.
James Orlando, senior economist at TD Bank, has agreed that another rate hike will be in place for the next Bank of Canada meeting, with markets pricing in a 75 basis point increase, he said in a note on Wednesday.
Although gasoline prices boosted CPI last month, Porter writes that easing the pain at the pumps so far in July means headline inflation numbers should ease slightly this month.
However, he warned that inflation will remain higher through 2022 as other segments of the household basket remain under pressure.
“While lower pump prices may moderate inflation next month, we will need to look at the core for inflation to actually peak,” he said.
Although the pace of price growth has slowed since May, RSM Canada economist Tu Nguyen said on Wednesday that it would be “too early to declare peak inflation”.
She told Global News earlier this week that although inflation may peak by the end of the summer, the global causes of inflation are too unpredictable to forecast the peak with certainty.
“There is still a war going on,” she said. “There is a lot of uncertainty, geopolitical tensions and pandemics raging. And who knows what will happen on the global stage in the next six months. “
– with files from Global News’ Anne Gaviola, The Canadian Press
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