Customers at a market in Toronto. Today’s inflation data release follows May CPI that came in flat at 1.7 per cent. (Photo by Zou Zheng/Xinhua via Getty Images) · Xinhua News Agency via Getty Images
Canada’s inflation rate rose in June as the Consumer Price Index (CPI) increased to 1.9 per cent annually from 1.7 per cent the month before, according to Statistics Canada data released Tuesday. Economists broadly agree that the new data make a Bank of Canada (BoC) interest rate cut on July 30 unlikely.
On a monthly basis, CPI increased 0.1 per cent in June. Seasonally adjusted, CPI rose 0.2 per cent.
“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 wrote in a note about the data.
The main reason for the headline jump was gasoline. While gas prices were still down 13.4 per cent from a year ago — a substantial drop due to the removal of the carbon tax — that decline was smaller than the 15.5 per cent fall seen in May. As a consequence, even though gas is cheaper than last year, its downward pull on the overall inflation rate has weakened. Prices also increased for goods like cars and furniture.
Economists had expected inflation to rise to two per cent in June, according to consensus forecasts published by CIBC.
Importantly for the central bank, measures of core inflation — which ignore the most volatile components to get a clearer view of underlying price pressures — remained high. CPI-median rose 0.1 percentage point to 3.1 per cent from last year, while CPI-trim was flat at three per cent.
“Simply put, underlying inflation remains stubbornly strong,” Porter wrote, noting the surprising job gains reported last week that had already made a cut less likely. “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).”
TD Bank economist Andrew Hencic wrote in a note to clients that a July cut is unlikely, and suggests cuts remained possible in 2025, with the ongoing Canada–U.S. tariff narrative a key factor.
“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 wrote.
“Ultimately, we believe that absent a quick resolution on trade, the economic backdrop should give the BoC space to deliver more easing this year.”
A recent survey shows Canadians remain worried about their finances, with two-thirds of respondents desperately awaiting further interest rate cuts.
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The persistently high core inflation numbers are due to two factors, BMO’s Porter says. First, shelter costs tend to shift slowly — with rent, “the single biggest contributor to inflation over the past year,” rising 4.7 per cent from last year, and mortgage costs declining but still up “a meaty” 5.6 per cent. The second factor is the trade war’s impact on durable goods and some groceries, Porter writes.
Inflation on grocery prices remained higher than the headline rate, but slowed from the month before — a 2.8 per cent year-over-year increase in June following a 3.3 per cent rise in May. This was in large part due to a decline in fresh vegetable prices, with items like onions (−10.3 per cent) and cucumbers (−18.3 per cent) getting cheaper.
Durable goods prices rose 2.7 per cent in June, up from a two per cent increase in May. Passenger vehicle prices were up 4.1 per cent from a year ago, with StatCan also measuring the first year-over-year rise in used car prices in 18 months. Furniture prices were up 3.3 per cent from a year ago.
Tariffs likely had a hand in prices for clothing and footwear rising faster in June (two per cent year-over-year) than in May (0.5 per cent), Statistics Canada says.
The headline inflation rate of 1.9 per cent continues to be held down by the removal of the carbon tax on energy in April. When energy is excluded, the CPI rose 2.7 per cent, underlining how much pressure remains in other parts of the economy.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on X @jmacf.
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