Quick take

Inflation slipped back but still hot

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The Conference Board of Canada’s economist Anna Feng offers the following insights on the June Consumer Price Index (CPI).

Inflation slipped to 3.1 per cent in June, partly due to a reweighting of the basket of consumer goods. The growth of gasoline prices is slowing and prices on food and clothing are cooling too. Elevated housing prices, however, continued to be the main upward contributor to last month’s inflation. We expect that inflation will trend around 3 per cent for the rest of 2021, as a result of ongoing supply shortage issues and increasing consumer demand. Though still turbulent, core inflation remains moderate and these price shifts are likely within the Bank of Canada’s expectations and should not lead to any shifts in monetary policy.


  • Overall, despite a slight dip, June’s inflation still reflected rapid growth in consumer prices.
    • While prices on clothes, food and recreation cooled down, increasing costs related to shelter, which weighs the most (30 per cent) on the CPI basket, keeps inflation running hot above 3.0 per cent.
    • Going forward, the issue of the semiconductor supply shortage is not expected to be resolved soon. As such, the increased cost of production, coupled with rising consumer demand on service, will keep inflation close to 3 per cent for the rest of 2021.
  • Statistics Canada updated the Consumer Price Index basket this month based on consumer spending last year; compared to 2017, Canadians spent more on housing and furnishing but less on transportation and clothing in 2020.
    • The new basket suggests that the changes in services prices, which were heavily discounted by the pandemic last year, will weigh less on inflation growth going forward.
  • Gasoline prices continued to jump higher in June, coming close to peak levels last seen in 2018.
    • This is a result of the recovery of global oil demand when travel restrictions start to loosen around the world. However, the “base year” effect—where gasoline price soared 10.5 per cent in June 2020—slowed down the year-over-year growth rate in June 2021 to 32.0 per cent.
  • Homeowner’s replacement cost—an index that incorporates new home prices—soared 12.9 per cent in June, its highest growth since November 1987, largely as a result of elevated housing demand and rising home-building costs.
  • The average of the Bank of Canada’s three measures of core inflation held steady at 2.2 per cent in June, slightly higher than the Bank’s 2.0 inflation target. With core inflation trending below 3 per cent, the Bank of Canada is not expected to raise the interest rate before 2023.

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Anna Feng

Anna Feng


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