Canada’s inflation rate ticked up in June, cementing expectations the Bank of Canada will hold interest rates steady at its upcoming July meeting.
June’s Consumer Price Index increased to 1.9% year-over-year, up from 1.7% in May. This was slightly below economists’ expectations of 2%.
On a monthly basis, CPI grew by 0.1% with a seasonally adjusted increase of 0.2%.
Key factors in this inflation uptick include higher prices for automobiles and furniture, Statistics Canada said on Tuesday.
Although gas prices remain lower than last year, down 13.4%, their moderating effect on inflation was less than in May, when gas prices declined by 15.5%.
Bank of America analysts believe Canada’s central bank will keep interest rates unchanged in July as core inflation, which removes the more volatile energy and food components, remains sticky.
The average of the two core measures, trimmed and median, was slightly above expectations at 3.05%, up from 3% a month ago, they highlighted.
“In our view, June's print is important as core could resume the consistent upward trend observed since December 2024, only interrupted by May's print so far,” they wrote.
“We expect the Bank of Canada to deliver its next cut in September (25 basis points), but the stickiness in core inflation poses a risk that the Bank of Canada may have to wait even more, as it will likely wait to see a clear downward trend in core inflation before cutting.”
The analysts wrote that their inflation forecast is unchanged following June’s CPI print.
“After incorporating June's print to our forecast, we continue to expect inflation at 2% by end-2025 and end-2026,” they wrote. “Overall, we see risks to the downside due to slowing activity, although higher (retaliatory) tariffs may pressure some prices.”