Canada’s core inflation edged higher in June 2025
Canada’s consumer price index rose by 1.9 per cent in June, up from 1.7 percent in May, a modest gain, and still within the Bank of Canada’s 1–3 percent target. A smaller drop in gasoline prices, following the removal of the federal carbon tax in April, was the main cause behind the headline increase.
Core inflation stubbornly elevated
Beneath the surface, however, prices are moving faster. The Bank’s preferred core indicators, CPI‑median and CPI‑trim, registered at 3.1 percent and 3 percent in June. Even more telling, the annualised three‑month average climbed to 3.4 per cent, up from 3.0 per cent in May. These metrics strip out volatile prices to focus on underlying inflation, a gauge that remains well above the comfort zone.
What’s behind the uptick
Several sectors are behind sticky inflation. Durable‑goods prices, notably cars prices (+4.1 %) and furniture prices (+3.3 %), have picked up pace. Prices of services continue to rise steadily, around 3 percent. These gains reflect domestic pressures and rising input costs, including the early impact of tariffs.
Markets and the central bank
Investor sentiment has shifted. Futures markets have almost ruled out a rate cut in July. Expectations of a reduction dropped from around 27 percent to under 10 percent following the June figures and a robust job-gain report of roughly 83,000 new positions.
What the BoC will do
Some feel that the Bank of Canada faces a dilemma. Does it?
Job growth is strong, and the policy rate is neutral. There’s not much pressure to lower rates except to pump some fuel into the property market. However, property market conditions are uneven across the country, some markets are hot while others are cold, so a one-size-fits-all approach would be ill-advised.
Although headline inflation remains within the target range, core inflation remains persistently high. That gives the bank little room or reason to lower rates. Governor Tiff Macklem is therefore expected to hold the policy rate at 2.75 percent at the July 30 meeting, with markets likely to watch for further moves in September or October.
Outlook and risk factors
If the BoC leaves rates unchanged in July, the next rate decision arrives on September 17.
Three factors complicate a future cut:
Sticky core inflation might require a rate increase.
Renewed trade‑policy uncertainty could lead to job losses and higher inflation.
The economy is performing well, which would indicate that a neutral policy rate is most appropriate.
The current backdrop makes it unlikely the Bank will ease policy in September unless jobs and economic output soften sharply.
In summary, headline inflation remains under control, but persistent core pressures and external risks leave the Bank of Canada little choice but to stay on hold. September’s decision will be telling, not just for markets, but for households and businesses across Canada.
Real estate industry analysts have been forecasting a strong recovery in Toronto and Vancouver, built on a foundation of lower mortgage rates. While lower rates were expected in April, June, and now July, they continue to be pushed back. A conservative view of the property market would predict that a recovery in Toronto and Vancouver will not occur until Spring 2026.
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