Latest inflation figures set to arrive this week with next BoC decision looming
Canada’s inflation rate probably climbed modestly in June after a softer-than-expected reading in May, according to a new RBC Economics forecast. The bank’s economists believe the consumer price index (CPI) will rise to 1.9% year-over-year, up from 1.7% the previous month.
The report, authored by RBC assistant chief economist Nathan Janzen and economist Abbey Xu, suggests that while recent tariffs have begun to affect prices for specific goods like food and vehicles, the broader impact has remained limited.
“We expect it is likely too early to see a significant increase in prices due to tariffs in Canadian and US inflation data for June,” they wrote. “Canadian retaliatory tariffs announced earlier this year were measured and targeted, and in many cases, have been paused to avoid raising costs for Canadian consumers and producers.”
Vehicle prices have increased since March, and early signs of food price hikes have emerged, but supply chain inventories built prior to tariff implementation may delay broader inflationary effects.
Distorted CPI growth
Despite a jump in global oil prices triggered by unrest in the Middle East, Canadian gasoline prices fell 0.9% from May. This decline, along with the April removal of the federal carbon tax on consumer fuel, continued to weigh on CPI growth.
Meanwhile, food price inflation—partly driven by Canadian tariffs on US imports—eased in May and is expected to soften further in June.
Tax policy changes have further complicated the inflation outlook. With indirect tax adjustments distorting annual figures, attention has shifted to the Bank of Canada’s core inflation measures. RBC expects month-over-month growth in the CPI trim and median measures to remain close to May’s 0.2% increase. Excluding food and energy, core inflation is forecast to tick up slightly to 2.7%.
Looking ahead
RBC expects US inflation to climb more noticeably. Tariff-driven cost increases, while distributed across the supply chain, are anticipated to push June’s consumer price growth to 2.6% year-over-year.
In Canada, other key economic indicators will round out the week. Manufacturing sales likely declined again in May, particularly in petroleum, transportation, and food products. RBC also forecasts that Canadian housing starts will fall to 255,000 units in June—a 9% decrease from May—while core wholesale sales are expected to dip 0.4%, driven by reduced activity in machinery and equipment.
“With tax changes significantly distorting annual price growth, the Bank of Canada’s preferred core inflation metrics […] will continue to be watched closely for signs of changes in underlying trends,” the report noted. Month-over-month increases in these measures are expected to remain near May’s pace, suggesting only modest movement away from the Bank’s 2% inflation target.
The central bank's next decision on interest rates is scheduled to arrive at the end of the month, with a jump in inflation likely pushing back its timeline for a resumption of interest rate cuts.
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