Canada’s inflation story in June appears deceptively tame on the surface—but dig a little deeper, and the pressures that matter most to the Bank of Canada are still very much alive.
In her latest note1, Abbey Xu, Economist at RBC, offered a clear-eyed breakdown of the June Consumer Price Index (CPI) data, emphasizing a pivotal shift in the inflation narrative: domestically-driven services inflation is now the main source of concern, even as external factors like energy and tariffs complicate the broader picture.
“It remains too early to determine whether the recent increases in auto and grocery prices are fully attributable to tariffs,” Xu writes. “But the bulk of upward pressure on prices in recent months has come from domestically produced ex-shelter services that are more reflective of domestic consumer demand trends than external factors.”
This subtle yet important distinction signals a regime change in inflation drivers—away from supply chain snarls and energy shocks, and toward steady, homegrown momentum that central banks tend to take far more seriously.
Headline Inflation Rebounds, But Core Stays Sticky
Headline inflation nudged up to 1.9% year-over-year in June, in line with expectations and a modest rise from May. The main contributor? A slower decline in energy prices, which had previously offered some relief at the pump.
However, core inflation—the Bank of Canada’s favored gauge of underlying trends—remained sticky, with CPI-trim and CPI-median still hovering around 3.0% and 3.1%, respectively. Even on a monthly basis, the pace of increase—while slightly slower at 0.2%—remains elevated relative to the BoC’s 2% comfort zone.
Xu flags a particularly revealing metric: the “supercore” inflation, which focuses on services excluding shelter. It’s holding firm at 3.4% on a three-month rolling average—a clear signal that the inflation the Bank truly worries about is still entrenched.
“Year-over-year inflation continues to be skewed by the removal of the federal carbon tax,” she explains. “The Bank of Canada's preferred core measures exclude the effects of that tax change and both CPI-median and CPI-trim measures have held steady at around 3 percent year-over-year since April, remaining significantly above the Bank of Canada's 2 percent inflation target.”
Tariffs, Cars, and Clothing: Mixed Bag for Goods Prices
Auto prices remain a hot topic. In June, passenger vehicle inflation rose to 4.1%, up from 3.3% in May, with both new and used cars contributing to the uptick. Whether this is a tariff story or a demand story is still unclear, but the increase is notable in either case.
On the other hand, grocery price inflation cooled—a rare bit of good news for household budgets. And shelter costs, while still high, showed a slight reprieve as mortgage interest costs edged down, even though rents crept higher, maintaining pressure on renters across the country.
One surprise in the data came from the apparel sector. Clothing and footwear inflation jumped sharply—from 0.5% to 2.0% year-over-year. Xu notes that “Statistics Canada attributed this increase to ongoing uncertainty in global trade, which heightened production and import costs, indirectly pushing up retail prices.”
This sharp move—particularly in a category known for frequent discounting—suggests retailers are facing cost pass-through decisions they can no longer delay.
Inflation Broadens Across the Basket
Perhaps the most quietly alarming development: the scope of inflation is widening. Xu points out that 55% of CPI basket components now show three-month annualized inflation rates above 3.0%—the broadest inflation pressure observed so far in 2025.
In other words, inflation is no longer just about energy, housing, or groceries—it’s becoming increasingly widespread.
What It Means for the Bank of Canada
The implication of all this? Don’t expect another rate cut anytime soon.
“Recent data is consistent with our base-case view that the Bank of Canada will not cut interest rates again this cycle, having opted to skip cuts at its last two meetings,” Xu concludes.
She adds: “Firmer price growth among domestically produced and consumed services comes alongside a June labour market rebound, improved business sentiment, and resilient consumer spending trends.”
In short, the data no longer supports a dovish pivot, despite ongoing risks to growth. The inflation the Bank of Canada watches most closely—core services, broad basket diffusion, and stickiness in “supercore” categories—is proving stubborn.
And while Canada’s “restrained approach to retaliation to tariffs from the U.S.” may help limit imported inflation, the real story is happening at home—in the cost of haircuts, daycare, restaurants, and domestic travel. That’s where inflation is embedding itself.
Key Takeaways:
- Headline CPI rose 1.9% year-over-year in June, as expected.
- Core inflation (CPI-trim and CPI-median) remains stuck at ~3.0%.
- Supercore services inflation held steady at 3.4% on a 3-month annualized basis.
- Auto prices rose again, while grocery inflation eased.
- Clothing and footwear inflation spiked, driven by global trade cost pressures.
- Inflation across the CPI basket is broadening, with 55% of components above 3%.
- BoC is likely done with cuts this cycle, according to RBC.
As 2025 progresses, the key question won’t be “Is inflation rising?”—but rather, “Where is it hiding?” For now, the answer seems to be: right here at home.
Footnote:
1 "RBC Canadian Inflation Watch." RBC, 15 July 2025,
