Canada’s consumer price inflation accelerated to 1.9% y/y in June from 1.7% in May, matching analyst expectations.
Meanwhile, core inflation measures remained stubbornly elevated around 3%, effectively decreasing the chances of a Bank of Canada (BOC) rate cut at the July 30 meeting.
Here are key points from June’s CPI report:
- Headline CPI rose 1.9% y/y in June (from 1.7% in May), 0.1% m/m
- Core CPI-median increased to 3.1% (from 3.0%), CPI-trim held at 3.0%
- 3-month annualized core inflation surged to 3.5%, a six-month high
- Durable goods inflation accelerated to 2.7% y/y amid tariff impacts
- Market odds of a July 30 rate cut dropped to under 10%
The acceleration in headline inflation was driven primarily by a smaller decline in gasoline prices (-13.4% vs -15.5% in May) and faster price growth in durable goods.
Passenger vehicle prices rose 4.1% y/y, with used vehicles seeing their first increase in 18 months (+1.7%). Furniture prices jumped 3.3%, while clothing and footwear surged 2.0% as businesses passed on higher costs amid tariff uncertainty.
Food inflation showed some relief, with grocery prices slowing to 2.8% from 3.3%, helped by fresh vegetable prices declining 3.1% y/y – the first drop since October 2021.
Link to Canada’s June CPI Report
This week’s release put the BOC between a rock and a hard inflation print. Core inflation is still sitting stubbornly around 3%, well above the bank’s comfort zone, even as the broader economy shows signs of slowing. Shelter costs are easing, but only gradually, now at 2.9%.
The mix of elevated core inflation, strong job growth, and lingering uncertainty around U.S. trade policy is complicating the BOC’s next move. Canadian retaliatory tariffs on U.S. imports are adding to the pressure, especially on durable goods, making it harder for policymakers to justify another rate cut.
For a September cut to even be on the table, markets would need to see either a meaningful drop in core inflation or a sharp economic downturn, neither of which looks likely based on current data.
Until then, the BOC can stay cautious and wait for clearer signs that inflation is heading back to target.
Canadian dollar vs. Major Currencies: 5-min
Overlay of CAD Pairs vs. Major Currencies Chart by TradingView
The Canadian dollar weakened after the CPI release, but bounced back fast as traders zeroed in on sticky core inflation. Bond yields surged, with the 10-year jumping 9.6 basis points to 3.615%, the highest since last July.
The turnaround came as markets looked past the headline and focused on the stubborn core metrics. Core CPI held near 3%, and the share of CPI components running hotter than 3% ticked up to 39% from 37% – a headache for Governor Macklem and crew.
Layer that with June’s strong jobs report, which added 83,000 positions, and the idea of a July rate cut quickly fell apart. Traders slashed their expectations, with cut odds for July 30 plunging to just 5% from 14%.
The Loonie clawed back lost ground against most majors, except the U.S. dollar, which kept its edge on the back of rising Treasury yields and fading Fed cut hopes.
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