June Inflation Hits 1.9% as Vehicle Prices Soar

The annual rate of inflation in Canada picked up to 1.9% in June, rising from 1.7% in May, Statistics Canada reported on Tuesday. The increase was broadly in line with economists’ expectations and reflects higher prices in certain categories, notably motor vehicles.

Gasoline prices were essentially flat in June. Despite higher crude oil prices and ongoing geopolitical tensions putting upward pressure on pump prices, gasoline’s near‑steady level compared with a steeper month‑over‑month decline at the same time last year contributed to the rise in the headline inflation rate.

Stripping out energy, annual inflation measured 2.7% in June. The removal of the consumer carbon price at the start of April continues to temper year‑over‑year comparisons, reducing the pace of headline inflation relative to what it would have been with the carbon levy in place.

Food inflation eased to 2.9% in June, down from 3.4% in May. Statistics Canada attributed part of the easing at the grocery store to lower prices for fresh vegetables, which helped slow food‑price growth overall.

Shelter inflation cools, but car and furniture prices heat up

Shelter costs moderated further in June, with shelter inflation easing by 0.1 percentage point to 2.9% year‑over‑year. While housing‑related inflation cooled, price pressures intensified in other durable goods. Passenger vehicle prices accelerated to 4.1% in June, up from 3.2% in May, reflecting stronger price gains at dealerships. Used car prices rose on an annual basis for the first time in 18 months as inventories tightened, contributing to the rebound. Furniture prices also climbed more rapidly in June, forming part of a broader acceleration among durable goods in the consumer price basket.

These June inflation figures are the last full month of price data the Bank of Canada will review before its next policy decision on July 30, giving policymakers fresh evidence on whether inflationary pressures are easing or persisting.

Core inflation shows no signs of easing

The Bank of Canada’s preferred core measures of inflation remained elevated in June, staying around the 3% mark. Core inflation excludes volatile items such as energy and certain food components and is closely watched by policymakers as an indicator of underlying price pressures. The persistence of core inflation near 3% suggests that domestic price dynamics continue to be resilient.

The inflation report arrived shortly after Statistics Canada released employment data showing an unexpected gain of 83,000 jobs in June and a slight dip in the unemployment rate to 6.9%. Together, the stronger labour market and steady core inflation complicate the case for near‑term interest rate cuts.

TD Bank senior economist Andrew Hencic told clients that June’s inflation print strengthens the argument for holding policy rates in the near term. “Healthy core price growth, coupled with last week’s surprisingly robust employment gains now make a July cut from the Bank of Canada unlikely,” he said.

Low odds of a rate cut this month

After the inflation release, the financial markets reduced the probability of a quarter‑point rate cut later this month. According to LSEG Data & Analytics, market pricing put the odds below 10%, down from just over 13% before the report.

Hencic also noted that renewed trade tensions—highlighted by recent tariff threats—could influence the Bank of Canada’s timeline for easing policy. Trade uncertainty may weigh on economic activity, which could, over time, give the central bank more scope to consider rate cuts if growth and inflation soften.

CIBC senior economist Ali Jaffery likewise expects the Bank of Canada to keep rates on hold at its upcoming meeting. He said waiting until the fall would allow the bank to collect more data on cost pressures, observe the economic impact of tariffs and other shocks, and gain a clearer view of the likely trade outcomes before making a decision on interest rates.

Read more about inflation:

• How Canada’s inflation rate is affecting your finances
• What is inflation?
• How has inflation affected Canadians’ finances in recent years?
• Canadians will see wages pick up as immigration slows, Conference Board argues