CPI Growth Picks up in June as Some Tariff Impacts Appear

Key insights

Canada’s inflation rate rose in June, even as the headline figure remained below the Bank of Canada’s 2 per cent target. The repeal of Canada’s carbon tax continued to keep headline inflation down, bringing gasoline prices sharply lower than at the same time last year. However, rent price growth, which had been decelerating due to weaker population growth, picked up slightly in June. Meanwhile, the impact of U.S. tariffs and Canadian retaliatory measures on CPI inflation is starting to appear. Statistics Canada attributed higher prices for clothing and footwear on trade uncertainty and tariffs. Vehicle prices also grew by 4.1 per cent (y/y; up from 3.2 per cent in May), suggesting auto sector levies could be showing up in consumer prices.

The outlook for near-term inflation is obscured by competing upward and downward pressures, compounded by the impulsiveness of trade policy shifts. On one hand, tariffs and rising consumer inflation expectations may create conditions in which businesses feel warranted to raise prices, given a clear and widely recognized driver of cost increases. On the other hand, sluggish domestic demand will add downward pressure to inflation, making cost increases more difficult for businesses to pass onto consumers. Overall, the immediate impact of tariffs on consumer prices is likely to be modest, but this could change as the final tariff rates remain in flux: by August 1, Canada may either reach a trade deal to remove many of the tariffs or, alternatively, non-CUSMA-compliant goods may face a higher 35 per cent tariff.

For more details about the impact of U.S. tariffs and our research on Canada’s place in a changing world, please read more here.