Inflation falls below 3%, but core measures still proving “sticky”

Canada's headline inflation rate slowed to 2.8% in June, the lowest since March 2021 and below market expectations of 3%. Core inflation, which excludes volatile items, also slowed, but at a slower pace. The Bank of Canada's preferred measures of core inflation, CPI-median and CPI-trim, ticked down to 3.9% and 3.7%, respectively. However, the three-month annualized Median remained steady at 3.6%, and Trim accelerated to 4%. Mortgage interest costs continued to rise, contributing to inflation, with the mortgage interest cost index increasing by 30.1% year-over-year in June. Some analysts suggest headline inflation may rise above 3% in the coming months, leading to potential interest rate hikes after the summer, while others believe the Bank of Canada may remain on the sidelines to observe forthcoming data.