According to Statistics Canada data released on Tuesday, Canada’s inflation rate increased to 1.9% per year in June, up from 1.7% in May.
The increase was primarily driven by rising prices for durable goods, such as autos and furnishings, while the deflationary pressure from gasoline prices weakened.
The monthly Consumer Price Index (CPI) increased 0.1% in June and 0.2% seasonally adjusted. Economists expected a slightly larger rebound, with CIBC consensus predictions predicting a 2% annual gain.
Core measures remain firm
Despite the little increase in the reported inflation rate, underlying price pressures remained high. Year on year, the Bank of Canada’s two major core inflation measures, CPI-median and CPI-trim, remained at 3%.
They exclude volatile components, which are critical to policy decisions regarding long-term inflation trends.
Core inflation remains stubbornly strong and could constrain the central bank’s ability to ease monetary policy at its next decision on July 30.
The Bank of Montreal’s Benjamin Reitzes said in a commentary Monday that the job growth reported last week “would need to see core inflation take a sizeable tumble before a rate cut could even be contemplated.”
Durable goods push prices higher
Durable goods price rises contributed significantly to the June inflation spike. Durable goods prices increased by 2.7% annually, compared to 2% in May.
Passenger vehicle costs rose 4.1% from the previous year, while used car prices saw their first annual increase in 18 months.
Furniture also contributed to the overall increase, demonstrating that consumer demand for high-priced items remains strong despite rising interest rates.
Gasoline prices remain lower, but have less impact
Although gasoline prices continued to fall from a year earlier, the rate of drop slowed, reducing their impact on overall inflation.
In June, gas prices fell 13.4% year on year, which was less than the 15.5% reduction seen in May.
“While consumers continued to pay less at the pump on a year-over-year basis in June, the decline was smaller than in May,” Statistics Canada reported in its publication.
This lower effect from energy costs pushed CPI upward, even though other inflation categories remained stable or decelerated.
Tariffs and cross-border dynamics
Tariffs continue to play an important role in setting inflation trends across North America.
Tariffs imposed by the United States and countermeasures implemented by Canada can have an impact on ultimate consumer prices in both nations, with the impacts differing by product and sector.
While the impact of these trade policies is already reflected in the final prices collected by the Consumer Price Index, they continue to influence the overall inflation environment.
The Bank of Canada continues to closely watch these events, providing analysis on how cross-border trade disputes may influence monetary policy choices.
Tariff-related changes do not require any particular adjustments to CPI methodology, according to Statistics Canada, because these effects are already represented in market pricing.
Nonetheless, the agency will closely monitor tariff developments and their inflationary consequences.
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