The annual rate of inflation eased back below three per cent in June as motorists paid less to fill up the gas tank, Statistics Canada said Monday.

Inflation slowed to 2.8 per cent in June, down from the recent high of 3.2 per cent in May and a tick lower than most economists were expecting.

The agency pointed to a 10 per cent drop in the cost of gasoline month-over-month to explain the decline.

Gas prices surged over the spring mostly because of conflict in the Middle East, but a tentative peace agreement between the United States and Iran took pressure off global oil prices over the course of June.

Taking gas prices out of the equation, StatCan said inflation was unchanged at 2.2 per cent from May to June.

Renewed hostilities between the nations have pushed prices at the pump higher again in recent weeks. TD Bank senior economist Leslie Preston said in a note to clients Monday that rising gas prices in July means the June drop likely won’t be repeated, but she still thinks inflation has peaked for 2026.

Price hikes at the grocery store also eased to 3.9 per cent in June, down from 4.3 per cent in May.

Consumers saw prices for fresh fruit rise at a slower pace in June, driven by lower costs for grapes, StatCan said. But price hikes accelerated for fresh or frozen chicken, some bakery goods and items from the freezer section, offsetting those slowdowns.

FIFA World Cup games in Toronto and Vancouver, meanwhile, saw costs for travel-related services like accommodation and rental cars surge in June. The cost of traveller accommodation was up around 20 per cent year-over-year in Ontario and British Columbia last month.

Air transportation costs also jumped 9.6 per cent annually, marking the biggest increase in more than three years. StatCan said higher jet fuel costs and stronger demand for domestic travel drove the increase.

The Bank of Canada held its benchmark interest rate steady at 2.25 per cent last week. The central bank signalled at the time that there were few signs that price pressures from the Iran war were spilling over into broader inflation.

Benjamin Reitzes, BMO’s managing director of Canadian rates and macro strategist, said in a note that the Bank of Canada’s preferred core inflation metrics also slowed unexpectedly in June.

He said the breadth of items seeing their prices rise faster than three per cent annually narrowed last month, which should only give the Bank of Canada more confidence in its stand-pat stance.

Preston said inflation in Canada is “benign” right now. It’s clear that weak demand in the economy is weighing on inflation and holding businesses back from raising prices, she said.

“June’s inflation report reinforces our view that the Bank of Canada can remain on the sidelines for quite some time,” Preston said.

This report by The Canadian Press was first published July 20, 2026.