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Underlying Inflation Remains Stubbornly Hot in Canada

Strategic Insights

— 2 min read

Canada's underlying inflation remained persistently high in June, with the annual pace accelerating to 1.9 per cent, up from 1.7 per cent in May. The Bank of Canada's closely watched core inflation metrics remained around three per cent in June, a level that many economists believe is too hot for the central bank's comfort. Despite the trade war with the United States, the Canadian economy appears to be holding up, with consumers still spending and businesses not hesitating to raise prices. The Bank of Canada's final look at price data before its next interest rate decision on July 30 suggests that a third straight interest rate hold is likely.

Key Takeaways:

  • Underlying inflation accelerated to 1.9 per cent in June, up from 1.7 per cent in May, with prices of motor vehicles and other durable goods driving inflation higher.
  • The Bank of Canada's core inflation metrics remained around three per cent in June, a level that many economists believe is too hot for the central bank's comfort.
  • The Canadian economy appears to be holding up under the weight of the trade war with the United States, with consumers still spending and businesses not hesitating to raise prices.
  • Diesel and gas prices were nearly unchanged in June, with higher crude oil prices and geopolitical conflicts contributing to increased pressure at the pumps.
  • Excluding energy, annual inflation was 2.7 per cent in June.
  • The removal of the consumer carbon price at the start of April continues to dampen the annual price comparisons.
  • Tariffs were cited by Statistics Canada as an explanation for rising clothing and footwear prices in June.
  • Price hikes for passenger vehicles accelerated to 4.1 per cent in June from 3.2 per cent in May.
  • Used car prices increased annually for the first time in 18 months thanks to tighter inventories.
  • Examples of industries and sectors being affected include motor vehicles (4.1%), clothing and footwear (3.1%), and used cars (2.8%).

Statistics:

  • Underlying inflation accelerated to 1.9 per cent in June.
  • Annual inflation pace: 1.9 per cent (June), up from 1.7 per cent in May.
  • Core inflation metrics: around three per cent in June.
  • Excluding energy, annual inflation: 2.7 per cent in June.
  • Gasoline prices: nearly unchanged in June.
  • Motor vehicle prices: 4.1 per cent increase in June.
  • Clothing and footwear prices: 3.1 per cent increase in June.
  • Used car prices: 2.8 per cent increase in June.
  • Consumer price index: 1.9 per cent in June.

Sources:

  • The Canadian Press
  • Statistics Canada
  • BMO chief economist Doug Porter
  • Stephen Brown, deputy chief North America economist at Capital Economics
  • Liang Sen/ Xinhua News Agency via Getty Images

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