CPI Reinforces Scotiabank's Longstanding Bank of Canada Rate Hold View for This Year

12:17 PM EDT, 07/15/2025 (MT Newswires) -- The Bank of Canada is on an extended policy hold that is reinforced by Tuesday's core inflation readings, said Scotiabank.

A hold at BoC's July 30 policy meeting is very likely after 83,000 jobs were created in June, with core consumer price index remaining "too warm" amid light evidence that tariffs might be working their way through, and given no clarity on trade and fiscal policy, noted the bank.

Scotiabank Economics pointed out it wouldn't be the least bit surprised to see the BoC boycott a baseline forecast again in favor of uncertain scenarios in the July 30 Monetary Policy Report.

The Canadian dollar (CAD or loonie) is outperforming most other major crosses on Tuesday as USDCAD increased from about 1.3675 pre-data to 1.37 post-data, stated the bank. 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, which is 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% month over month 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, added Scotiabank.

Such inflation readings continue the trend of far too warm underlying pressures on inflation. The BoC hasn't yet won the fight against past drivers of inflation, let alone forward-looking uncertainties that could keep it sticky. The BoC prided itself on 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, according to Scotiabank.

Inflation came through both services and core goods prices, excluding food and energy.

There was no clear distorting role played by seasonal adjustment factors this time, as the June 2025 seasonally-adjusted factor wasn't dissimilar to past months of June. Shelter costs were up by 0.2% month over month, with rent pressures continuing but the way house prices are captured was disinflationary.

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