Investing.com -- Canada’s annual inflation rate decelerated more sharply than anticipated in June, driven by a substantial pull-back in global energy prices and a notable cooling in underlying core metrics. The consumer price index rose 2.8% on a year-over-year basis, down from a 3.2% print in May and below the 2.9% consensus forecast compiled by Bloomberg.

Signaling broader relief for monetary policymakers, the average of the Bank of Canada’s preferred median and trim core inflation measures dropped to 1.85%, marking its lowest level since September 2020 and its first descent below the 2% threshold in nearly six years. This moderation suggests that underlying price pressures are shifting into a lower gear, prompting market participants to gauge the central bank’s next policy maneuvers.

The headline deceleration was primarily anchored by a 10.2% monthly drop in gasoline prices, which grew at a softer annual pace of 20.5% in June compared to 33.2% the prior month. Stripping out the volatile energy component, the CPI excluding gasoline held steady at an annual rate of 2.2%, highlighting that the cooling trend remains heavily dependent on global oil market dynamics.

Meanwhile, grocery price inflation continued its gradual downward trajectory as the index for food purchased from stores moderated to a 3.9% annual pace from 4.3% in May. Despite this deceleration, June marked the 17th consecutive month that grocery price increases outpaced the headline CPI rate, maintaining pressure on household balance sheets.

Conversely, pockets of sticky inflation emerged within the service sector, where prices for traveler accommodation, air transportation, and vehicle rentals accelerated amid increased tourism tied to the FIFA World Cup. CIBC economist Andrew Grantham noted that these localized spikes in host cities like Toronto and Vancouver as transitory disruptions rather than a structural resurgence of consumer demand.

Against this backdrop, the monthly headline index contracted by 0.4%, recording its sharpest month-over-month decline since December 2024. Pointing to the generally subdued core readings alongside these temporary travel distortions, Grantham indicated that the central bank is likely to maintain its overnight rate at current levels for the remainder of the year.