Produce on display in a Breakeyville, Que., grocery stor on Nov. 28 2006. Although energy remains a key driver of inflation, food prices have also shot up. THE CANADIAN PRESS/Jacques Boissinot

OTTAWA - Inflation in Canada continues to defy the experts' expectations, exhibiting stubborn staying power in the face of a weak economy and even softer employment conditions.

For the second month in a row, the annual rate hit a new two-year high-water mark as it rose one-tenth of a point to 2.4 per cent in June, and core underlying inflation edged ever closer to the Bank of Canada's two per cent target at 1.8.

Perhaps more surprising is that the story is no longer all about gasoline. Although energy remains a key driver, food prices have also shot up, shelter costs remain frothy, as do many other goods Canadians regularly buy.

"The breadth is impressive, with more than 50 per cent of all categories now rising at a pace above two per cent (the central bank target)," noted Doug Porter, chief economist at BMO Capital Markets.

"The persistently strong and widespread readings raise at least some doubts on just how 'transitory' this first-half burst in inflation is, and already puts the Bank of Canada's fresh inflation forecast at risk."

Analysts had expected inflation to plateau at 2.3 per cent and perhaps start showing signs of ebbing in the upcoming months as gas prices begin heading south and the impact of the lower loonie filtered through the economy.

Earlier in the week, Bank of Canada governor Stephen Poloz acknowledged that inflation had been frothier than he had anticipated, but stuck to the script that price pressures would soon start to moderate.

He cited the considerable slack in the economy, low wage gains, and strong competition in the retail sector as factors that would work against prices pressures. The bank sees inflation dipping below two per cent in the next year or so before returning to target in 2016.

Still, the steady march in prices since October, when annual inflation stood at 0.7 per cent, has been more persistent and stronger than the central bank and most economists had envisioned.

Market reacted by lifting the loonie 0.29 of a cent to 93.24 cents US. The market reaction is based on the assumption that inflation may force Poloz's hand sooner on hiking interest rates, which is a positive for the currency.

Another positive in Friday's data was that wholesale sales jumped by an unexpectedly high 2.2 per cent in May to a record $52.6 billion.

David Madani of Capital Economics, however, said the surprise in the data is unlikely to worry the Bank of Canada, agreeing with its overall view.

"This largely reflects exchange rate pass-through effects, rather than any improvement in domestic economic conditions. Overall ... the outlook for interest rates remains unchanged."

Most analysts don't see the central bank moving to tighten borrowing conditions until late next year or even early 2016.

In a recent analysis, TD Bank chief economist Craig Alexander said when rates do start rising, they will do so in tiny, incremental steps.

June's gains showed more broad-based pressure on prices. Energy, particularly gasoline and natural gas, continued to be main drivers with year-over-year gains of 5.4 per cent and 19.4 per cent over last June. Both, however, were higher in May and so represented a moderating, if still significant, influence on inflation.

Overall, the energy index rose 6.7 per cent last month, compared to 8.4 per cent in May.

Meanwhile, food prices are becoming an increasingly important factor, increasing 2.9 per cent in June from 2.3 per cent in May. Food purchased in stores rose even more to 3.2 per cent as consumers paid 9.4 per cent more for meat and 9.5 per cent for fresh vegetables than they did last year at this time.

Shelter costs also remained relatively elevated with a 2.9 per cent increase.

Government taxes on tobacco continued to exert an influence on the price of cigarettes, which are now 10.3 per cent higher than last June.

Not all items Canadians consume saw price gains, however. Cost for air transportation, digital computing, furniture, video equipment and personal care supplies were lower this June than 12 months earlier.

On monthly basis, prices were 0.1 per cent higher than in May, the agency said.

Provincially, inflation rose the most in Ontario to three per cent as natural gas prices shot up 38.4 per cent from a year ago and gasoline rose 9.4 per cent. Quebec recorded the lowest inflation reading in the country at 1.7 per cent.

News from © The Canadian Press, 2014