Canadas annual inflation rate slowed to 2.8% in June, below market expectations, supported by a sharp decline in gasoline prices following the signing of a memorandum of understanding between the United States and Iran aimed at ending the war, data showed on Monday.

However, fighting later resumed in the Middle East, prompting gasoline prices to begin rising gradually again.

Statistics Canada said the Consumer Price Index (CPI) fell 0.4% month-on-month in June.

Economists polled by Reuters had expected annual inflation of 2.9% and a monthly decline of 0.2%.

Inflation had reached 3.2% in the previous month, its highest level in 29 months, exceeding the Bank of Canadas 3% upper target limit for the first time in more than two years.

Gasoline prices drive inflation lower

Statistics Canada said gasoline prices were the main factor behind the slowdown in inflation, after prices at the pump fell by more than 10% in June.

On an annual basis, gasoline prices rose 20.5% in June, compared with a 33.2% increase in May.

Excluding gasoline, annual inflation held steady at 2.2%, unchanged from the previous month.

Even so, transportation costs, which account for around 18% of the CPI basket, rose 6.7% year-on-year in June as fuel prices remained elevated during part of the period.

Several other components of the inflation basket also recorded increases of more than 3%, with food prices rising 3.5% and prices for recreation, education and reading increasing 3.8%.

Meanwhile, the annual increase in food purchased from stores slowed to 3.9% in June from 4.3% in May.

June nevertheless marked the 17th consecutive month in which grocery inflation exceeded the overall inflation rate.

Core inflation measures continue to ease

The data also showed a further decline in the core inflation measures closely monitored by the Bank of Canada to assess underlying price pressures.

CPI-median fell to 1.9% in June from 2.1% in May.

CPI-trim also declined to 1.8% from 2.0% in the previous month.

Following the release, the Canadian dollar weakened 0.18% against its US counterpart to C$1.4045 per US dollar, equivalent to 71.20 US cents per Canadian dollar.