Canada's Inflation Pressures Remain Too High in June Despite A Weakened Economy, Says National Bank

12:30 PM EDT, 07/15/2025 (MT Newswires) -- The latest Canadian inflation data aligns broadly with expectations, showing an annual inflation rate of 1.9%, said National Bank of Canada after Tuesday's consumer price index data for June.

At first glance, this figure isn't alarming as it is close to the Bank of Canada's target of 2.0%, it noted. However, when the impact of indirect taxes is removed, which decreased with the abolition of the carbon tax, the consumption basket rose by 2.5%.

This rate is comfortably within the higher band of the BoC's target range. The central bank's preferred core inflation measures, which exclude the most volatile components each month, are increasing at an even faster pace, averaging 3.0%.

Recent momentum shows no signs of slowing, with the three-month annualized change at 3.4% and the monthly change in June at 3.1% (annualized).

Given Tuesday's data, it is even more likely that the BoC will remain on the sidelines in July, especially since private employment is showing signs of recovery, according to the LFS survey in June, stated National Bank. While the Canadian economy was weakened in the first half of the year by tariff uncertainty, as evidenced by the decline in gross domestic product in April and May and the unemployment rate rising by three-tenths of a percentage point from February to June, this hasn't yet resulted in lower inflationary pressures.

National Bank continues to believe that monetary accommodation will be necessary by the end of the year. Firstly, the bank remains skeptical about the improvement in the labor market reported by the "notoriously" volatile LFS survey, despite ongoing tariff uncertainty and other economic indicators suggesting the economy is still in contraction going into Q3.

In addition, various measures of wages suggest that current inflationary pressures could ease in the coming months. Finally, rents, which were still rising sharply in June, are also expected to moderate over the next 12 months, as evidenced by the decline in asking prices.

Overall, it can take time for economic weaknesses to be reflected in inflation, and this is likely the case at the moment, according to the bank.

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