Canada Economics: Core inflation measures below 2%

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Canada Economics: Core inflation measures below 2%

Canada Economics

20 July 2026 Citi Research

Data – Headline CPI in June fell 0.4%MoM, softer than consensus expectations for

a 0.2% decline and our forecast for a 0.3% decline. The year-on-year reading fell

back into the BoC’s target range at 2.8%.

Core inflation measures were also soft in June, with CPI Median falling from 2.1% to

1.9% and CPI Trim falling from 2.0% to 1.8%. On a 3-month basis xx. CPI ex food

and energy rose from 1.6%YoY to 1.8%YoY, as did CPI ex food, energy, and taxes.

Citi’s view – Despite remaining concerns about upside risks to inflation from higher

energy prices and input costs, recent data continue to reaffirm that the downward

effect on inflation from soft demand is more than offsetting these upward

pressures. With markets still pricing rate hikes (implicitly tightened policy for an

economy in persistent excess supply), we expect activity and inflation to remain

softer than officials’ latest forecasts in the July MPR. We continue to pencil in 50bp

of rate cuts in Q4 this year but would not rule out a cut as soon as September,

especially if the summary of deliberations of the July meeting (out next week)

shows officials starting to discuss the possibility that cuts may be required.

Softness in June CPI was mostly broad-based (hence the decline in trimmed-mean

inflation measures). Food prices in particular were weaker than we expected, with a

decline in food purchased from stores and surprisingly soft restaurant prices, which

fell modestly on the month. Softer restaurant prices could be one sign of weaker

demand effects. Goods prices were generally modest, with little sign that a recently

weaker Canadian dollar could be putting upward pressure on goods.