By The Canadian Press

Stubborn core inflation in June likely cements calls for Bank of Canada rate hold

Jul 15, 2025 | 2:00 AM

OTTAWA — Underlying inflation remained stubbornly hot in June, leading financial markets and many economists to firm up calls for a third straight interest rate hold from the Bank of Canada later this month.

Statistics Canada said Tuesday that the annual pace of inflation accelerated to 1.9 per cent in June, up from 1.7 per cent in May and largely in line with economists’ expectations.

Prices didn’t ease much at the gas pumps last month, the agency said, and higher prices on motor vehicles and other durable goods also drove inflation higher.

The Bank of Canada’s closely watched core inflation metrics meanwhile remained around three per cent in June — “a little too hot” for the central bank’s comfort, said BMO chief economist Doug Porter in an interview.

The economy appears to be holding up under the weight of Canada’s trade war with the United States, he explained, which means consumers are still spending and businesses are not as shy about raising prices.

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“One of the reasons why underlying inflation is still relatively strong is because, yes, the economy has proven a bit more resilient than I think many expected,” Porter said.

The June inflation figures mark the Bank of Canada’s final look at price data before its next interest rate decision on July 30.

The central bank has held its policy rate steady at 2.75 per cent in back-to-back decisions, and Porter said he sees little reason for a change in posture.

“The Bank of Canada has stayed on the sidelines for the last two meetings. It now looks like they will stay there again in late July, and simply it boils down to the fact that underlying inflation has proven to be too strong for their liking,” he said.

The latest inflation figures come a few days after StatCan reported an unexpected gain of 83,000 jobs in June, enough to push the unemployment rate down a tick to 6.9 per cent.

Stephen Brown, deputy chief North America economist at Capital Economics, said in an interview that the latest inflation report does little to change the narrative for the central bank after last week’s surprisingly strong jobs report.

“That surge in employment suggests that the tariff effects so far really aren’t doing a huge amount of damage to the economy and means that, even if the bank thinks it could do with a slightly lower policy rate eventually, it doesn’t need to rush into that,” he said.

Financial market odds of a quarter-point cut later this month fell to just over five per cent as of Tuesday afternoon, according to LSEG Data & Analytics, from just over 13 per cent before the inflation release.

Brown said Capital Economics is still pencilling in a pair of quarter-point cuts at the Bank of Canada’s decisions in September and December. He noted that confidence is wavering in the call for the September cut, however.

CIBC senior economist Ali Jaffery said in a note to clients Tuesday that he sees the Bank of Canada being patient in the months ahead as trade talks unfold.

“Waiting until the fall will give them more time to observe cost pressures, the response of the economy to tariffs and the uncertainty shock, and perhaps most important, to have a clearer picture of Canada’s tariff outcome,” he said.

Porter said the consumer price index saw a steeper decline in prices from May to June last year, but last month’s shifts were less rosy.

Economists call this the base-year effect — the tendency for last year’s data to distort annual comparisons in the consumer price index.

“We actually only saw a small increase in prices in June, but that was just enough … to nudge up that headline inflation number,” he said.

StatCan said gasoline prices were nearly unchanged in June as higher crude oil prices and geopolitical conflicts ratcheted up pressure at the pumps. Motorists saw a steeper monthly decline in prices this time last year, which the agency said fuelled a rise in headline inflation.

Excluding energy, annual inflation was 2.7 per cent in June. The removal of the consumer carbon price at the start of April continues to dampen the annual price comparisons.

StatCan pointed to tariffs as an explanation for rising clothing and footwear prices in June.

The agency also said price hikes for passenger vehicles accelerated to 4.1 per cent in June from 3.2 per cent the month previous.

Used car prices increased annually for the first time in 18 months thanks to tighter inventories.

While automotive tariffs are a significant focus of the trade dispute between Canada and the United States, Brown said it’s not clear that vehicle prices are being solely driven up by tariffs.

A weak exchange rate between the loonie and the U.S. dollar at the start of the year is probably still affecting prices, he said, and the United States’ own consumer price index data for June didn’t mirror Canada’s rising vehicle costs.

Food inflation cooled somewhat to 2.9 per cent in June, down from 3.4 per cent in May. StatCan pointed to lower costs for fresh vegetables as driving down inflation at the grocery store.

Shelter inflation also continued to ease, dropping a tenth of a percentage point to 2.9 per cent year-over-year in June.

Furniture prices were also rising faster in June as part of broader acceleration from durable goods in StatCan’s consumer basket.

This report by The Canadian Press was first published July 15, 2025.

Craig Lord, The Canadian Press