Statistics Canada says inflation jumped 8.1 per cent in June, the biggest year-over-year increase in nearly 40 years as gas prices soared.
The increase in the Consumer Price Index (CPI) was driven by skyrocketing gas prices, which rose 6.2 per cent compared to May and 54.6 per cent compared to the same time last year. It marked the biggest annual increase since January 1983.
"However, price increases remained broad-based with seven of eight major components rising by 3 per cent or more," StatCan said.
All eight major components of the index saw increases in the month of June. The transportation category recorded the biggest year-over-year increase, rising 16.8 per cent and surpassing the 14.6 per cent rise hit in May. Shelter was the lone category that increased at a slower pace than last month, as the Canadian housing market cools in the wake of rising interest rates, although it was still up 7.1 per cent compared to last year.
Food prices also continued to rise in Canada, up 8.8 per cent compared to last year. While prices are still up from last year, price growth slowed, as the increase matched the 8.8 per cent rise reported in May. Grocery prices remained high, with food purchased from stores increasing 9.4 per cent annually. Compared to last year, the price of fresh vegetables jumped 9.5 per cent, dairy products were up 8.7 per cent and meat increased 8 per cent. The price of edible fats and oils soared 28.8 per cent.
The easing of public health restrictions also led to higher demand for travel-related services in June, StatCan says. Accommodation prices soared last month, jumping 49.7 per cent, while the price for air travel jumped 6.4 per cent compared to May.
'Economy is still too hot'
While economists had predicted that inflation would be higher in June than the 7.7 per cent reached in May, CPI came in lower than the average expected gain of 8.4 per cent.
"The slightly weaker-than-anticipated inflation readings will come as good news for central bankers trying to control price pressures," Desjardins economist Royce Mendes wrote in a note to clients on Wednesday.
"Moreover, the more recent fall in global commodity prices is seeing Canadian energy prices declining in July. But the economy is still too hot, and 45 per cent of the CPI basket is now rising faster than 7 per cent per year."
The inflation data comes a week after the Bank of Canada raised its benchmark rate by 100 basis points, a surprise move that exceeded expectations as the central bank attempts to tame soaring inflation. The Bank of Canada warned last week that inflation will likely remain around 8 per cent over the next few months and that more hikes are likely to come in order to rein prices in.
While growth slowed in some categories, and gas prices are expected to drop off in July, the challenge facing the Bank of Canada when it comes to taming inflation remains a daunting one. BMO Capital Markets chief economist Douglas Porter notes that CPI falling below economist expectations is "where the good news ends."
"The monthly rise would have been at the upper end of anything seen in the decade before the pandemic, and still represents an annualized increase of just over 8 per cent—so today's result is better, but not good," he wrote in a note on Wednesday.
"It's really saying something when an 8.1% inflation rate is greeted with a modicum of relief in financial markets because it wasn't quite as awful as expected... Headline inflation is likely to retreat next month on the pullback in pump prices, but will probably remain quite lofty through the second half of this year."
With files from Bloomberg News
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.