The Canadian inflation rate may have hit a pace not seen in 40 years last week, but there are early signs that consumer price pain could soon start to ease.

Stephen Brown, Senior Economist at think tank Capital Economics, is betting that the sharp upward trajectory of CPI inflation -- which hit 8.1% in June, the highest since January 1983 -- has reached its peak, given it actually came in lower than analysts’ estimates.

However, that won’t deter the Bank of Canada from pressing forward with its rate hiking cycle, leaving the door open for several more interest rate hikes this year.

“The increase was smaller than the consensus estimate of 8.4% and, while the large upward revision to CPI-common threw a wrench in the works, the [central bank] was probably still pleased to see that an average of the three core measures rose by only 0.1% in June, the smallest increase in eight months,” he wrote in an investor commentary note.

His take follows StatCan data that reveals the pace of food price growth was flat last month -- remaining at 8.8% -- leading to a slight softening in grocery store prices in late May, for the first time since April 2021. Meat retail prices are now below April levels, while vegetable and fruit prices softened in both May and June. 

In fact, says StatCan, last month’s hefty reading was mostly due to the price of gas; excluding it from the basket of goods, the CPI rose 6.5% annually in June, following a 6.3% increase in May.

That’s not to say prices are set to chill rapidly, however; Bank of Canada Governor Tiff Macklem has said he expects inflation to hover “a little over” the 8% mark for at least a few months. 

In a speech made to the Canadian Federation of Independent Business (CFIB) prior to the June inflation print, he said, “Inflation is high sevens. It’s probably going to go a little over eight per cent. We have the next CPI next week. We know oil prices were very high in June, so I wouldn’t be surprised to see it move up.”

According to Macklem, inflation will remain sticky for the remainder of this year before dropping to around the 3% mark by the end of 2023, and then finally moderating to 2% in 2024 -- the Bank of Canada’s target, and the gauge it uses when determining interest rate pricing.

The Bank of Canada has been aggressively trying to reign in inflation since the beginning of the year, when it started to spiral higher due to pandemic-induced supply chain disruptions as well as the impact of the war in Ukraine on energy prices.

The central bank has since implemented four increases -- one 0.25% in March, two half-point hikes in April and June, and a full 1% increase on July 13 -- bringing its trend-setting Overnight Lending Rate from 0.25% to 2.5%.

The Bank strongly telegraphed in its announcement that more hikes are to come this year, stating, “Inflation in Canada is higher and more persistent than the Bank expected in its April Monetary Policy Report (MPR), and will likely remain around 8% in the next few months. While global factors such as the war in Ukraine and ongoing supply disruptions have been the biggest drivers, domestic price pressures from excess demand are becoming more prominent.”

“The Governing Council decided to front-load the path to higher interest rates by raising the policy rate by 100 basis points today. The Governing Council continues to judge that interest rates will need to rise further, and the pace of increases will be guided by the Bank’s ongoing assessment of the economy and inflation.”