The elimination of the consumer carbon price is expected to keep the headline inflation figure lower over the next 10 months, making core measures of inflation particularly important for gauging price pressures in the economy.DARRYL DYCK/The Canadian Press
Canada’s annual inflation rate ticked up to 1.9 per cent in June and underlying price pressures remained sticky, reinforcing expectations that the Bank of Canada will hold off from cutting interest rates this month.
Statistics Canada reported Tuesday that the annual rate rose from 1.7 per cent in May, in line with analysts’ expectations.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in price changes, continued to hover around three per cent, suggesting that underlying price pressures in the economy remain strong.
The United States, meanwhile, reported that annual headline inflation accelerated to 2.7 per cent in June from 2.4 per cent the previous month. The Canadian and U.S. reports both showed signs that higher tariffs are being passed on to consumers in areas such as clothing and home furnishings.
As the U.S. looks to cut trade deals with dozens of countries, there are mounting expectations that tariffs will remain in place, albeit not at the levels threatened by U.S. President Donald Trump.
Prime Minister Mark Carney said Tuesday that there’s little evidence that Canada will see all tariffs removed in an agreement with the Trump administration. This was the first time that Mr. Carney acknowledged this potential outcome publicly.
However, the trade outlook isn’t expected to push the Bank of Canada to cut interest rates just yet.
“On the heels of a good job report and somewhat firm price pressures, we expect the BoC to remain on pause in July,” said CIBC Capital Markets senior economist Ali Jaffery in a client note.
“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.”
Financial markets odds suggest a 10-per-cent chance of a quarter percentage point rate cut this month, according to LSEG data. That’s down from 15 per cent prior to the release of the consumer price index report.
The elimination of the consumer carbon price is expected to keep the headline inflation figure lower over the next 10 months, making core measures of inflation particularly important for gauging price pressures in the economy.
Bank of Montreal chief economist Douglas Porter said although the economy has weakened, inflation remains sticky because of shelter costs, as well as some pressures from the trade war, which he says are showing up in durable goods and groceries.
Prices for durable goods in June rose faster year-over-year, with passenger vehicle prices increasing by 4.1 per cent and furniture prices up 3.3 per cent.
Clothing and footwear prices accelerated to two per cent, as trade uncertainty puts upward pressure on prices in the industry, Statscan noted.
Grocery prices increased at a slower pace of 2.8 per cent last month, compared with 3.3 per cent in May.
Meanwhile, rent and mortgage interest costs were top contributors to inflation over the past year, rising by 4.7 and 5.6 per cent, respectively.
The central bank has taken a cautious approach to monetary policy as Canada faces a trade war with the U.S., choosing to hold its key interest rate steady at 2.75 per cent during its past two meetings.
Governor Tiff Macklem signalled last month that the Bank of Canada will be ready to step in and cut interest rates if the economy takes a major hit, but the central bank hasn’t rushed to do so just yet.
Tuesday’s report is the final inflation reading before the bank’s next interest rate announcement on July 30.
The central bank will also take into consideration the June jobs report, which showed the unemployment rate fell unexpectedly to 6.9 per cent as the economy added a healthy 83,000 jobs last month.
“We’ll need to see a material deceleration in core (inflation) for a cut in even the September meeting to be in play, barring a steep deterioration in the economy,” Mr. Porter wrote in a client note.
The U.S. Federal Reserve is also expected to remain on hold this month, as tariffs risk pushing up inflation further.
Mr. Trump has been publicly pressuring Federal Reserve Chair Jerome Powell to lower interest rates, while a White House official recently suggested that the administration is looking at whether it can fire Mr. Powell.
The annual pace of inflation accelerated to 1.9 per cent in June as consumers were paying more at car dealerships. The June figures mark the final look the Bank of Canada will get at price data before its next interest rate decision on July 30, with many economists expecting its key overnight rate to remain unchanged at 2.75 per cent.
The Canadian Press