Canada’s annual inflation rate rose to 1.9% in June, up from 1.7% in May, driven by higher prices for automobiles, clothing, and footwear, according to data released on Tuesday by Statistics Canada.
On a monthly basis, the consumer price index increased by 0.1%, in line with forecasts.
Durable goods led the price increases, with a 2.7% annual rise in June after a 2% increase in May. Passenger vehicle prices climbed 4.1% year-over-year in June, following a 3.2% rise the previous month.
Clothing and footwear prices also rose, increasing 2% annually in June after a 0.5% gain in May. Statistics Canada said international trade uncertainty contributed to the rise in those segments.
This was the third consecutive month inflation remained below 2%, the mid-point of the Bank of Canada’s target range. However, the modest increase in prices, along with a strong employment report last week, may reduce the chances of a rate cut at the central bank’s next decision on July 30.
Money markets priced the odds of a cut at just over 10% following the release of the inflation data.
One of the core measures of inflation, the CPI-median, which tracks the middle of the price distribution, rose slightly to 3.1% in June from 3% in May. The CPI-trim, which excludes the most volatile price movements, remained steady at 3%.
Shelter prices, which include mortgage interest and rent and make up about 30% of the inflation basket, rose 2.9% in June, falling below 3% for the first time in over four years. Meanwhile, gasoline prices dropped 13.4% year-over-year in June after a 15.5% decline in May.
Gas prices are expected to stay low for the next 10 months after the federal government ended the consumer carbon levy in April.
The Canadian dollar strengthened by 0.19% to 1.3677 against the U.S. dollar, while yields on two-year government bonds slipped 0.6 basis points to 2.761%.
