Data from Statistics Canada shows that Canada’s inflation rate rose in June as the Consumer Price Index (CPI) bumped up to 1.9% annually from 1.7% in May.
Many economists beleve that a July 30 rate cut won’t happen. On a monthly basis, CPI increased 0.1% in June and, seasonally adjusted, CPI rose 0.2% (Yahoo Finance).
“The quick read is that the overall report really gives the Bank of Canada no opening to cut interest rates at the upcoming meeting on July 30,” —BMO Chief Economist Douglas Porter.
Gasoline was the driving force behind the jump. Gas prices are still down 13.4% compared to a year ago — largely due to the elimination of the carbon tax. Still, that drop was less than May’s 15.5%.
Gas is more affordable this year but it’s cooling effect on the overall inflation rate isn’t quite as strong. In addition, the cost of cars and furniture have shot up.
Stubborn inflation
Economists anticipated inflation to rise to 2% in June, according to consensus forecasts published by CIBC.
The Bank of Canada uses core measures of inflation to develop a more solid understanding of underlying price pressures. This typically doesn’t include the most volatile factors.
With that said, core measures remained high. CPI-median rose 0.1 percentage point to 3.1% from last year and CPI-trim plateaued at 3%.
“Underlying inflation remains stubbornly strong. We’ll need to see a material deceleration in core for a cut in even the September meeting to be in play, barring a steep deterioration in the economy (which can’t be ruled out with the ongoing tariff uncertainty).”
He also noted how the unforeseen job gains reported last week already decreased the probability of a cute.
Won’t making the cut
TD Bank economist Andrew Hencic issued a note to clients that a July cut likely won’t occur. However, he still believes that cuts are possible in 2025, citing the ongoing Canada–U.S. tariff narrative as a driving force.
“Looking forward, the course of trade negotiations and evidence of whether June’s healthy labour market report was a one-off, or the start of a new trend, will be crucial,” Hencic stated.
“Ultimately, we believe that absent a quick resolution on trade, the economic backdrop should give the BoC space to deliver more easing this year.”
Core inflation
BMO’s Porter says the enduring high core inflation numbers are a product of two key factors. First, shelter costs tend to fluctuate slowly. Rent has been “the single biggest contributor to inflation over the past year,” rising 4.7% from last year. Mortgage costs are declining but are “still a meaty” 5.6%.
It almost goes without saying that the second factor is the trade war’s impact on durable goods and some groceries, Porter writes.
Dips and valleys
Inflation on grocery costs stayed remained higher than the headline rate. However, it slowed down from May with a 2.8% year-over-year increase in June following a 3.3% rise in May.
This is specifically linked to a drop in fresh vegetable prices, with items like onions (−10.3%) and cucumbers (−18.3%) becoming less expensive.
Durable goods prices rose 2.7% in June, marking a 2% increase since May. Passenger vehicle prices increased by 4.1% from a year ago, with StatCan also measuring the first year-over-year rise in used car prices in 18 months. Furniture prices also increased by 3.3% since 2024.
Clothing and footwear prices rose faster in June (2% year-over-year) than in May (0.5 per cent) (Statistics Canada), likely due to tariffs.
The 1.9% headline inflation rate is holding steady as a result of removal of the carbon tax on energy in April.
With the exclusion of energy, the CPI rose 2.7% — showing the amount of pressure exerted on other chapters of the economy.
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