- Core CPI measures were too warm again
- Breadth continues to rise
- Services inflation joined by core goods inflation
- Jobs, inflation, lack of clarity on trade and fiscal policy…
- …all merit staying on hold at the BoC
- Markets continue to come around to our view for the BoC to remain on hold this year
- Canadian CPI, m/m % // y/y %, NSA, June:
- Actual: 0.06 / 1.86
- Scotia: 0.2 / 2.0
- Consensus: 0.1 / 1.9
- Prior: 0.55 / 1.73
- Trimmed mean CPI m/m % SAAR: 2.8
- Weighted median CPI m/m % SAAR: 3.4
The Bank of Canada is on an extended policy hold that is reinforced by this morning’s core inflation readings. A hold on July 30th is very likely after 83k jobs were created in June, with core CPI remaining too warm amid light evidence that tariffs might be working their way through, and given no clarity on trade and fiscal policy. I wouldn’t be the least bit surprised to see the BoC boycott a baseline forecast again in favour of uncertain scenarios in the July 30th MPR.
CAD is outperforming most other major crosses today as USDCAD increased from about 1.3675 pre-data to 1.37 post data. Canada’s two-year yield climbed by 6bps post-data. OIS pricing for the July meeting was shaved a few points to basically nothing, with September cut pricing reduced to only about 7–8bps. Markets now only see 17bps of easing by the end of this year, down from 65bps priced at the peak in April during which Scotiabank Economics has always maintained a hold forecast for 2025.
The BoC’s preferred core CPI readings landed at an average of 3.1% m/m at a seasonally adjusted and annualized rate in June. Trimmed mean CPI was up 2.8%. Weighted median CPI was up 3.4%. Underlying inflation remains way above the 2% headline target.
Such inflation readings continue the trend of far too warm underlying pressures on inflation (charts 1, 2). The Bank of Canada has not yet won the fight against past drivers of inflation, let alone forward-looking uncertainties that could keep it sticky. The BoC prided itself for having been earlier to ease than most other central banks, but arguably cut too far and too fast without concrete evidence that core inflation was waning and policy is now arguably too loose going into major uncertainties surrounding inflation risk.
Inflation came through both services (chart 3) and core goods prices excluding food and energy (chart 4).
Traditional core CPI was also too warm (chart 5). It landed at 3.1% m/m SAAR in June after 3.2% in May and 4% in April. CPIX and CPI-ex-eight were also warm. The inflation excuses have grown tired as every measure of core inflation is sending warning signals.
There was no clear distorting role played by seasonal adjustment factors this time as the June 2025 SA factor wasn’t terribly dissimilar to past months of June (chart 6).
Breadth of inflationary pressures generally increased again in the higher ranges. The share of the CPI basket that was up by 3% or more slipped to 26% from 30%, but the share over 4% increased from 15% to 18% and the share over 5% increased a point to 9% (chart 7).
Across components, the recreation/education/reading—or so-called leisure category—picked up to 0.2% m/m SA as some components accelerated while the Spring travel frenzy eased off a bit as measured by prices for travel tours (chart 8).
Shelter costs were up by 0.2% m/m (chart 9) with rent pressures continuing but the way house prices are captured was disinflationary (charts 10, 11).
Transportation costs were muted (chart 12) largely due to weak gasoline prices as vehicle prices continued to rise (charts 13, 14).
Clothing and footwear prices jumped by 0.7% m/m SA in June to lead all other major categories (chart 15). Statistics Canada emphasized tariffs as a likely driver of higher costs.
Eating out was subject to some inflationary pressures (chart 16). ‘Sins’ prices remain volatile (chart 17).
Charts 18–19 provide a break down of the CPI basket in y/y terms and weighted contributions to the y/y change in CPI respectively. Charts 20 and 21 do likewise for the month-over-month changes.
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