Canada's "Warm" CPI Will Keep Central Bank on "Ice" Later in July, Says BMO

09:42 AM EDT, 07/15/2025 (MT Newswires) -- Canadian consumer prices rose 0.1% month over month in June, a tad lower than expectations yet still enough to nudge up the headline inflation rate to 1.9% year over year from 1.7% in the prior two months, sai Bank of Montreal (BMO) after Tuesday's CPI data.

Perhaps more importantly, the major measures of core inflation both remained stubbornly stuck right around 3%, with median edging up a tick to 3.1% and the trim mean holding fast at 3.0%. The breadth of inflation showed no real improvement, so the quick read is that the overall report really gives the Bank of Canada no opening to cut interest rates at the upcoming meeting on July 30, stated BMO.

According to the bank, the key question is: Why is core inflation so sticky, with growth struggling and the economy operating below capacity? The main reasons are that a) shelter costs have a long tail, and are receding only gradually, and b) there are some pressures from the trade war with the United States, notably in durable goods and some groceries.

On the latter, durable goods prices accelerated in June to a 2.7% year-over-year pace from 2.0% in May, with vehicle prices up 4.1% year over year (they fell 0.1% for all of last year), and furniture prices up 3.3% year over year (also down last year). As well, clothing & footwear prices popped 0.7% month over month in adjusted terms, lifting them 2.0% above year-ago levels -- and clothing is usually a reliable source of disinflation.

On shelter costs, there is improvement amid a softer housing market and slower population growth, but it's "glacial" in pace, pointed out the bank. Rent ticked up to 4.7% year over year and was the single biggest contributor to inflation over the past year -- given its large weight. Mortgage interest costs continue to wane, but they are still a meaty 5.6% year over year.

Food prices caught a bit of a break on a large drop in vegetable prices (down 1.9% year over year), but are still up nearly 3% year over year, with restaurant meals running a bit hotter still. Prepared food trends remain strong with tariffs biting in a few categories here, while coffee prices have charged up 23.2% year over year -- the fastest rise in almost 30 years.

Tuesday's result gives the BoC almost nothing to justify a rate cut in July, stated BMO. If the solid employment report was the icing on the cake for that decision, this is the cherry on top.

Simply put, underlying inflation remains stubbornly strong, added the bank. BMO will need to see a material deceleration in core for a cut in even the September meeting to be in play, barring a steep deterioration in the economy -- which can't be ruled out with the ongoing tariff uncertainty.

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