June Inflation Rate Ticks Higher

Canada’s inflation rate rose 1.9% on a year-over-year basis in June - up from the 1.7% gain posted in May - driven by rising costs for vehicles and clothing, Statistics Canada reported Tuesday. 

The increase roughly matched economists’ expectations and suggests the Bank of Canada will likely hold interest rates steady later this month. 

StatsCan said passenger vehicle prices rose 4.1% year over year in June following a 3.2% increase in May. Used passenger vehicle prices rose 1.7% in June after declining 0.1% in May, “with price growth occurring amid tighter inventories.” It marked first year-over-year increase in used passenger vehicle prices in 18 months, the federal agency said. 

Prices for clothing and footwear rose 2% year over year in June after increasing 0.5% in May, with industry experts pointing to uncertainty around tariffs as a key factor. Meanwhile, grocery prices rose 2.8% — a slower pace than May — as fresh fruits and vegetables saw their first price decline since 2021. 

Gasoline prices remained nearly unchanged month-over-month. Though still down 13.4% from last year, the drop was smaller than May’s 15.5% decline. 

With this report serving as the final inflation reading before the Bank of Canada’s July 30 rate decision, markets now widely expect the central bank to maintain its current policy rate of 2.75%. Analysts said the data offers little justification for an interest rate cut, especially as underlying inflation pressures remain firm.