Introduction to Inflation in Canada
Economists expect the pace of inflation to have picked up in June as the Bank of Canada continues to search for tariff impacts in the price data. Statistics Canada is set to report consumer price index data for June, which will provide insight into the current state of inflation in the country.
Expected Inflation Rate
CIBC expects the release to show the annual pace of inflation rose a tenth of a percentage point to 1.8 per cent. Katherine Judge, CIBC’s senior economist, believes that goods inflation was fuelling price pressures in the month, partly due to the impact of Canada’s tariff dispute with the United States.
Factors Affecting Inflation
On the other hand, Judge is looking for relief on rental prices to help take some of the steam out of shelter inflation. The rent index has not yet picked up drops in rents that have been seen for vacant units across the country, which will partly offset tariff impacts. Food inflation is also expected to continue pushing up the consumer price index.
Bank of Canada’s Next Move
The June CPI release will be the Bank of Canada’s last look at inflation before its next interest rate decision set for July 30. Financial markets are broadly expecting the central bank to hold its policy rate steady for a third consecutive time at that meeting. Odds of a quarter-point cut dropped to just 13 per cent after StatCan reported an unexpected gain of 83,000 jobs in June.
Underlying Inflation
Tiff Macklem, the governor of the central bank, noted that monetary policymakers were noticing some "unusual volatility" in the inflation figures. He also said underlying inflation could be "firmer" than the central bank first thought, and might be reflecting higher costs from tariffs between Canada and the United States. Royal Bank of Canada expects the annual pace of inflation accelerated to 1.9 per cent in June, with core inflation still stubborn and hovering at the top end of the central bank’s target band.
Surveys and Data
While the Bank of Canada and other economic watchers have been scouring price data for evidence of pressure from the U.S. trade dispute, some experts are not expecting "a lot of tariff impact to show up yet." Inflation data is also backward-looking by nature, so some are leaning more on the Bank of Canada surveys of businesses and consumers set for next week. These quarterly surveys give the central bank a sense of how businesses are handling tariff pressures and how quickly they might pass costs along to consumers.
Conclusion
In conclusion, the upcoming consumer price index data for June will provide valuable insight into the current state of inflation in Canada. Economists expect the pace of inflation to have picked up, partly due to the impact of Canada’s tariff dispute with the United States. The Bank of Canada will be closely watching the data to inform its next interest rate decision, and surveys of businesses and consumers will also play a crucial role in shaping the central bank’s understanding of the economy. With the addition of a strong June jobs report, it is likely that the central bank will hold its policy rate steady until September, but underlying inflation and tariff impacts will continue to be closely monitored.
