Temporary relief in gas prices expected to pull inflation back below 3% in June

A person fills up their car at a gas station in Montreal on Thursday, March 5, 2026. THE CANADIAN PRESS/Christopher Katsarov

OTTAWA — Falling gas prices in June are expected to pull the annual inflation rate back below three per cent when Statistics Canada reports fresh price data on Monday.

A Reuters poll of economists expects inflation fell to 2.9 per cent in June from a recent high of 3.2 per cent in May, according to LSEG Data & Analytics.

Economists at Royal Bank of Canada are a bit below that poll and expect inflation to ease to 2.8 per cent in June.

“Outside of more volatile components, inflation pressures are expected to remain broadly stable,” wrote RBC’s Nathan Janzen and Abbey Xu in a note to clients Friday.

Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said a 10 per cent drop in pump prices last month puts his inflation forecast right in line with the consensus.

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Global oil prices were falling in June on the prospect of peace between the United States and Iran, but renewed hostilities over the critical Strait of Hormuz are pushing the cost of gasoline higher again.

Reitzes said gas prices are not yet back to the highs seen over the spring, but the resurgence is a risk to the inflation outlook. The headline inflation rate could rise again in July after the expected dip in June, he warned.

“There’s a lot of unpredictability around what’s going to happen with the Middle East. Energy prices could still go higher, that could re-spark more inflation,” Reitzes said.

The Bank of Canada held its benchmark interest rate steady at 2.25 per cent for a sixth consecutive time on Wednesday.

Officials warned in an updated monetary policy report that the ongoing Middle East conflict means the inflation forecast is still highly uncertain.

The central bank expects the energy price shock will continue to fuel inflation through early 2027 before cooling back toward its two per cent target.

The Bank of Canada is seeing few signs so far that inflationary pressure from the Iran war is spilling over into other parts of the consumer basket. A soft economy is holding back many businesses from passing those higher costs on to consumers, the central bank noted this week.

Reitzes said if there are signs in the inflation data that more price segments are rising faster than three per cent, that would catch the attention of monetary policymakers.

“Broad-based spreading of that pressure is what they’re really worried about,” he said.

“The sector that is most susceptible, most vulnerable to higher inflation, would probably be food prices.”

Consumers are more likely to see the impacts of the Iran war at the grocery store because fresh food prices are sensitive to higher fuel and shipping costs.

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Food inflation accelerated to 3.8 per cent in May, up from 3.5 per cent the month previous. Janzen and Xu said that they expect food inflation to “remain firm” at 3.6 per cent in June.

Reitzes said one area where inflation is continuing to cool is in shelter, where slowing population growth is helping to rein in housing costs.

There were signs the sluggish housing market might have bottomed out in June, Reitzes said, which suggests prices may be stabilizing in the sector. But he said he’s not worried about pressures ramping up again anytime soon.

“Stable, low shelter-related inflation — that should be a positive for the Bank of Canada, that should be positive for Canadians and help keep overall inflation somewhat contained,” Reitzes said.

The Bank of Canada will get a look at inflation data for both June and July before making its next interest rate decision on Sept. 2.

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Craig Lord, The Canadian Press

This report by The Canadian Press was first published July 17, 2026.