June CPI: Expected cooling

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June CPI: Expected cooling

UpdateM

June CPI

Bank of Canada Implications

The June CPI print reinforces the case for an extended BoC hold. Headline inflation

cooled materially as gasoline prices retraced, while the Bank’s preferred core

measures moved below target. In our view, this is the inflation composition that allows

the BoC to look through the earlier headline overshoot: the energy shock is fading, core

inflation is contained, and the remaining upside pressure is concentrated in relative-price

shocks that can be identified.

Incoming data is broadly aligned with the July MPR. The BoC framed the recent inflation

pickup as primarily gasoline-driven, noting that inflation excluding gasoline and core

measures remained close to 2%, suggesting spillovers to other goods and services were

contained. The MPR also expects inflation to ease to around 2.5% in the second half of

2026 and return to the 2% target by early 2027, conditional on oil prices following the

futures curve and gasoline refinery margins narrowing. In that sense, the June print is

directionally consistent with the Bank’s baseline: headline inflation cooled to 2.8%Y,

gasoline fell sharply on the month, and CPI-Trim and CPI-Median moved below 2%.

The July MPR expects to see further lagged pass through from war-related supply

disruptions that are still moving through supply chains, including transportation costs,

energy-related inputs, fertilizer, shipping costs, and imported goods prices. It estimates

these additional cost pressures could have a peak impact of about 0.4pp on headline

inflation in 1Q27, even after the direct gasoline shock fades. That is the main reason the

Bank’s inflation forecast remains at 2.5% in 2H26 rather than falling immediately back to

target.