Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Inflation accelerated to 1.9% in June and the Bank of Canada’s preferred measures of core inflation rose to 3.05%, in line with our expectations. The BoC’s preferred measures of inflation are at or above 3% for the third consecutive month.
The breadth of inflationary pressures rose in June. The share of components of CPI rising by more than 5% remained unchanged at 19%, while the share of components increasing by more than 3% rose to 39% from 37%. We note that the share of components increasing by more than 3% remains well above historical norms for most of 2025 (see Fig. 1) and higher than during periods when inflation is at target, suggesting some stickiness and broad in inflationary pressures.
The recent trend in CPI’s monthly changes suggests that the momentum in inflationary pressures increased in June. As such, the 3-month annualized changes of many CPI components are above 3% (see Fig. 2), while the 3-month annualized change in headline CPI is at +0.7%, mainly due to the removal of the Carbon Tax in April.
The momentum of BoC’s core measures rose to 3.4% in June from 3.0%, remaining at the upper end of the inflation target (see Fig 2). The measure has been at or above 3% for 8 of the 9 previous months. This suggests some stickiness in the core measures and that price pressures have been mostly above target over the past nine months.
We would also note that the momentum in goods prices remains negative, at -3.7%, due to the removal of the Carbon Tax, but the momentum for services remains elevated at 4.0% and has been above 3% since February. The strong momentum in service prices is another sign of elevated and sticky inflationary pressures.
Overall, the report suggests that headline inflation remains low but that underlying inflationary pressures remain elevated. As such, the BoC is to remain concerned by its preferred measures of inflation remaining above 3%. The BoC is currently placing more emphasis on current inflation than on the amount of slack in the economy.
Today’s CPI number confirms that the BoC will be on hold at the July meeting, as inflation will remain a worry. Moreover, the rebound in the labour market in June, improvements in business and consumer confidence, and the reduction in economic uncertainty suggest the Canadian economy is no longer deteriorating and is likely stabilizing. Hence, the BoC can afford to be patient and to receive more information before acting.
In Alberta, inflation remained unchanged at 1.7% in June. Higher shelter costs (+2.8% y-o-y) continued to be the main source of inflation, while lower energy costs, due to the removal of the Carbon Tax, continued to be a drag. Inflation excluding food and energy (a core inflation measure) rose marginally to 2.9%, remaining the highest amongst the provinces.
The Consumer Price Index (CPI) increased 0.1% m-o-m non-seasonally-adjusted in June and the inflation rate accelerated to 1.9%. A rise in prices for food, shelter and transportation were the main source of increase in June.
A decline in clothing and footwear, recreation, education and reading, and household operations, furnishing and equipment put downward pressure on the CPI in June.
On a year-on-year basis, four of the eight major CPI components accelerated in June. Transportation costs were a smaller drag on inflation, with prices 0.6% y-o-y lower in June compared to -1.3% in May. Transportation costs reduced inflation by 0.1 percentage points (pp) in June, with gasoline accounting for a 0.4pp reduction.
Shelter cost inflation eased to 2.9%, the lowest since March 2021, and remains the main source of inflation, contributing 0.8pp to headline inflation, mainly due to higher rent (contributing 0.3pp) and mortgage interest costs (contributing 0.3pp) and property taxes (0.2pp).
Food price inflation eased to 2.9% y-o-y, adding 0.5pp to inflation. Some impact from the US tariffs, the wave of uncertainty and counter tariffs are likely pushing some prices higher.
In June, goods price inflation rose to +0.5% y-o-y and service price inflation eased to 3.0% y-o-y. Energy prices were 9.5% compared to the same month last year, as the removal of the Carbon Tax in April means lower energy price levels. Excluding food and energy, prices rose 0.1% m-o-m in June and were unchanged at 2.6% compared to the same month last year. The Bank of Canada’s old measure of core inflation, CPI excluding the 8 most volatile components and indirect taxes, rose to 2.7% from 2.5% in May.
Looking at the BoC’s core measures of inflation, they rose in June and remained at the upper end of the BoC’s inflation target. CPI-Trim remained at 3.0%, while CPI-Median rose to 3.1% from 3.0%. As a result, the average of the two measures increased marginally to 3.1%, above 3% target.
By provinces, headline inflation was the highest in Quebec (+2.2%), Manitoba (+2.2%), BC (+2.1%), and Ontario (+1.8% y-o-y), while it was the lowest in PEI (+0.8%), Newfoundland (+1.2%), and New Brunswick (+1.2%).
Core inflation, or CPI excluding food and energy, is highest in Nova Scotia (+3.0%), Manitoba (+2.9%), and Alberta (+2.9%). It was the lowest in Newfoundland (+1.6%), PEI (+1.7%), and New Brunswick (+2.5%).
In Alberta, prices increased 0.2% m-o-m and inflation was unchanged at 1.7% in June. Four out of eight CPI components decelerated on the month. Shelter costs eased to 2.8 % y-o-y, from 3.1% y-o-y in May, and remained the main source of inflation, contributing 0.8pp. The increasing pace of shelter cost inflation was due to the increase in owned accommodation (+4.0% y-o-y) due to increases in homeowners and mortgage insurance costs (+11.6% y-o-y) and higher property taxes (+6.3% y-o-y). Rented accommodations cost (2.9% y-o-y), as rents rose (2.9% y-o-y).
Food prices inflation eased to 2.5% y-o-y from 3.3% y-o-y, contributing 0.4pp to inflation. As seen nationally, some impact from the US tariffs, the wave of uncertainty and counter tariffs are likely pushing some prices higher in recent months.
Transportation costs were less of a drag on inflation at -1.4% y-o-y in June, after decreasing 2.0% y-o-y in May, reducing headline inflation by 0.2 percentage points. This was the result of a 14.6% y-o-y drop in gasoline prices, due to the removal of the Carbon Tax in April.
Food prices inflation eased to 3.3% y-o-y from 3.5% y-o-y, contributing 0.6pp to inflation. As seen nationally, some impact from the US tariffs, the wave of uncertainty and counter tariffs are likely pushing some prices higher.
Goods price inflation was 0.1% y-o-y in June after -0.2% y-o-y in May. Services price inflation eased to 3.1% y-o-y from 3.3% y-o-y in May. Inflation excluding food and energy accelerated to 2.9%, one of the highest amongst provinces. Energy costs were less of a drag at -12.8% y-o-y compared to -13.7% y-o-y in May.