Canada's CPI Forces Central Bank on Sidelines Until There Are More Job Losses, Says Rosenberg Research

10:16 AM EDT, 07/16/2025 (MT Newswires) -- The headline month-over-month number for June's Canadian consumer price index, which isn't seasonally adjusted, came in at 0.1%, matching the consensus expectation, and is lower than May's +0.6%, while the more important year-over-year trend, seasonally adjusted (SA), was 1.9%, and in line with consensus, said Rosenberg Research.

That marks three consecutive months of the year-over-year trend below the 2% target, noted Rosenberg Research.

The key is that the underlying measures of CPI inflation were a bit hotter than expected, and while the SA headline was decent at 0.2% month over month, the "old way" Rosenberg used to calculate "core" (excluding food and energy) came in at 0.3% month-over-month sequentially for the third month in a row.

Bank of Canada Governor Tiff Macklem isn't going to like that three-peat, stated Rosenberg. The median core and the key CPIX also rang in at 0.3% month over month.

While shelter costs are helping out in terms of dampening the inflation trend, there has been a surprising and disturbing uptrend across a host of products from vehicles to furniture, despite the recent strength in the Canadian dollar and a rather circumspect demand picture, it pointed out. Could it be that goods producers are taking advantage of the heightened inflation fear by passing on price increases? If so, this isn't a development that is going to make the BoC a very happy bunch.

The problem remains the sticky core inflation numbers -- that, combined with the strong jobs report last week, will keep Canada's central bank on hold until the job picture deteriorates further.

Canada is in an era where headline is below core, in part because of declines in volatile energy prices. Each of the important core indices is still running too hot for the BoC to feel safe easing quickly, and most of the core measures ticked up in June.

Canada's CPI numbers will be slightly discouraging for bond bulls, as several core measures ticked up -- but Rosenberg still sees a disinflationary trend incoming for the rest of the year. Despite the strong jobs report last Friday, wage growth continues to moderate. Even with unemployment falling last month, the unemployment rate remains well above neutral and the output gap has been growing this year.

This output gap means that any new inflation from tariffs will hit a wall in the labor market -- so Rosenberg feels safe being Canadian bond bulls even with this bump in the road.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.