Canada: Energy-led CPI pullback supports BoC – TD Securities

TD Securities’ Robert Both expects Canadian headline CPI to ease to 2.9% year-on-year in June, with a 0.2% monthly decline driven by sharply lower Energy prices. Core measures such as CPI-trim and CPI-median are forecast to hold near 2.0%, while Shelter disinflation offsets stronger Food and Travel Services. The profile broadly tracks Bank of Canada projections.

Energy drag and stable core inflation

"We look for headline CPI to slide back to 2.9% y/y in June as prices fall by 0.2% on the large drag from gasoline and other energy products. WTI oil prices fell by nearly 40% from their Q2 highs before bottoming below $70 USD in early July, but gasoline prices have seen a much smaller decline with refineries expanding their margins over the last month. Gasoline and other energy products should shave ~0.4pp from the headline print (m/m) while contributing ~1.0pp to inflation on a year-ago basis (vs 1.5pp in May)."

"Looking past the more volatile energy component should paint a more benign picture for underlying price pressures with core measures forecast to hold steady from May. Shelter prices will remain a source of disinflation with a modest deceleration across both rents, mortgage interest costs, and utilities, even with some stabilization of market based rents over May and June. However, the food component will provide another source of strength on higher producer prices, along with the tailwind from a softer loonie."

"The drag from energy products will more than offset a larger contribution from travel-related components in June, but we do not expect much impact on the Bank's preferred measures of core inflation. We forecast CPI-trim/median to hold at 2.0%/2.1% for a third consecutive month, while the ex. food/energy measure firms by 0.1pp to 1.7% y/y. That would also leave CPI-trim/ median (roughly) stable at 2.4% on a 3m annualized basis, while indicators of CPI breadth are unlikely to move lower with headline CPI."

"A 2.9% print for June would leave headline CPI tracking in line with BoC projections (3.0% in Q2), and the recent pullback in oil prices should give the Bank more scope to look through an upside surprise on core measures or an increase to inflation breadth. Conversely, further deceleration across core measures would leave CPI-trim/median sitting in the lower half of the target range, which might lead to questions around the BoC's policy stance if stronger GDP growth does not materialize over the rest of 2026."

"One wildcard will be the impact on travel-related components from the FIFA World Cup, with 13 games played across Toronto and Vancouver. Previous large-scale events like the 2010 Olympics and 2024 Era Tours saw a sharp increase for traveler accommodation costs, while others like the 2019 NBA Finals or 2025 World Series did not leave much of an impact. Industry sources have reported higher average daily rates on game days in Toronto and Vancouver, but June also tends to see a seasonal headwind to travel services coming off larger NSA increases in May; travel services inflation already accelerated by 7.5pp in May, and we look for another strong performance in June to build on this before unwinding some of the recent strength next month."