Inflation climbs to 1.9% in June, led by surging vehicle costs

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 led to a rise in headline inflation.

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

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

Shelter inflation cools, but car and furniture prices heat up

Shelter inflation also continued to ease, dropping a tenth of a percentage point to 2.9% year-over-year in June. But StatCan said price hikes for passenger vehicles accelerated to 4.1% in June from 3.2% the month previous. Used car prices increased annually for the first time in 18 months thanks to tighter inventories. Furniture prices were also rising faster in June as part of broader acceleration from durable goods in StatCan’s consumer basket.

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.

Core inflation shows no signs of easing

The central bank’s preferred core measures of inflation showed no signs of easing in June, remaining around 3%. 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%.

TD Bank senior economist Andrew Hencic said in a note to clients Tuesday that the June inflation report is another notch in the column for a rate hold later this month. “Healthy core price growth, coupled with last week’s surprisingly robust employment gains now make a July cut from the Bank of Canada unlikely,” he said.

Low odds of a rate cut this month

Financial market odds of a quarter-point cut later this month fell below 10% after the inflation report, according to LSEG Data & Analytics, from just over 13% before the release.

Hencic said renewed trade threats—U.S. President Donald Trump said last week he’ll hit Canada with a 35% tariff starting Aug. 1—could give the central bank more runway to cut interest rates in the months ahead if the economy starts to weaken further.

CIBC senior economist Ali Jaffery also said in a note that he sees the Bank of Canada holding rates steady later this month. “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.

Read more about inflation:

• How Canada’s inflation rate is affecting your finances
• What is inflation?
• How has inflation affected Canadians’ finances in recent years?
• Canadians will see wages pick up as immigration slows, Conference Board argues

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