Markets Update: Canadian Inflation Rises to 1.9% in June, Dimming Hopes for Bank of Canada Rate Cut

Canada’s Consumer Price Index (CPI) climbed to 1.9% year-over-year in June, up from 1.7% in May, according to Statistics Canada’s Tuesday release. The uptick fell short of economists’ expectations of a 2% rise, but core inflation measures remained elevated, signaling persistent price pressures and reducing the likelihood of a Bank of Canada (BoC) interest rate cut on July 30.

Month-over-month, CPI edged up 0.1%, with a seasonally adjusted increase of 0.2%. Gasoline prices, though down 13.4% from last year due to the carbon tax removal, contributed less to deflation than May’s 15.5% drop, driving the headline inflation increase. Prices for cars, furniture, and durable goods also rose, with durable goods up 2.7% annually (from 2% in May) and passenger vehicles up 4.1%.

Core inflation metrics underscored ongoing pressures: CPI-median rose to 3.1% from 3%, while CPI-trim held steady at 3%. BMO chief economist Douglas Porter noted, “Underlying inflation remains stubbornly strong,” citing robust shelter costs—rent up 4.7% and mortgage costs up 5.6%—and trade-related pressures on goods like clothing (up 2% from 0.5% in May). Grocery inflation slowed to 2.8% from 3.3%, driven by cheaper fresh vegetables like onions (-10.3%) and cucumbers (-18.3%).

The data, combined with recent strong job gains, makes a July rate cut unlikely, with some commentators suggesting trade negotiations and labor market trends will shape the BoC’s 2025 easing path. A significant slowdown in core inflation is needed for a September cut, absent a sharp economic downturn tied to ongoing Canada-U.S. tariff uncertainty.

Excluding energy, CPI rose 2.7%, highlighting broader economic pressures. Markets remain focused on upcoming bank earnings and tech sector performance, with NVIDIA’s strength lifting sentiment, as investors weigh these inflation dynamics against potential trade disruptions.