Last week's solid jobs report saw prospects of a BoC cut plunge – and it now seems off the table entirely for July
Canada’s inflation rate ticked higher in June, rising to 1.9% and likely ending any lingering hopes of a Bank of Canada interest rate cut this month.
Statistics Canada said on Tuesday that the consumer price index (CPI) had risen from May’s figure of 1.7%, coming in slightly lower than analysts had expected but still jumping as tariff tensions with the US continued to disrupt trade.
Mortgage interest costs were up by 5.6% compared with the same time last year, while rental costs increased by 4.7%. Those trends were offset by a big decline in costs at the pump, with gasoline prices sinking by 13.4%, while airfare costs slid by 9.2%.
Core inflation, which excludes volatile food and energy costs, remained elevated in June, hovering around the three-percent mark.
June’s increase, while mild, means the central bank looks likely to hold its policy rate steady in its next decision – scheduled for the end of this month – as it waits to see the long-term impact of US president Donald Trump’s trade war on the Canadian inflation outlook.
Trump has vowed fresh 35% tariffs on Canadian imports to the US falling outside the Canada-United States-Mexico Agreement (CUSMA) beginning August 1, with retaliatory tariffs by Canada potentially adding upside inflation risk.
Last week, labour market data showed that the Canadian jobs outlook remains resilient despite Trump’s trade war, with the economy unexpectedly adding 83,100 jobs as the unemployment rate also fell slightly.
That suggests the economy isn’t sagging yet under the weight of US tariffs – and today’s higher inflation means the Bank of Canada is likely to push any planned rate cuts toward the back end of the year.
Bank of Montreal (BMO) chief economist Doug Porter said in a note that the June inflation data “gives the Bank of Canada almost nothing to justify” cutting rates at the end of this month.
“If the solid employment report was the icing on the cake for that decision, this is the cherry on top,” he wrote. “Simply put, underlying inflation remains stubbornly strong.”
As for prospects of a September cut? Porter said core inflation would need to decelerate significantly for that to happen, “barring a steep deterioration in the economy {which can’t be ruled out with the ongoing tariff uncertainty.”
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