Rising inflation in June is solidifying economists’ calls that the Bank of Canada will stay on the sidelines at its next interest rate meeting on July 30 and increases doubt about a possible cut at its September meeting.

The consumer price index (CPI) rose 1.9 per cent in June, according to Statistics Canada on Tuesday, which matched analysts’ estimates, but that’s up from a 1.7 per cent increase in May.

Inflation remains below the Bank of Canada target rate of two per cent, but some economists attribute that to the cancellation of the

consumer carbon tax in April. However, they also said there are signs that retaliatory tariffs are increasing prices. Here’s where economists think inflation and the Bank of Canada are headed over the second half of the year.

‘Cost pressures persist’: Capital Economics

“Elevated core inflation suggests cost pressures persist in the economy, likely driven by the earlier depreciation of the

loonie and the impact of retaliatory tariffs,” Thomas Ryan, North America economist at Capital Economics Ltd., said in a note.

For example, CPI excluding gas held steady at 2.7 per cent in June, just under the top end of the Bank of Canada’s target range for inflation of one per cent to three per cent.

But the Bank of Canada’s preferred measures of inflation — core CPI trim and CPI median — have remained stubbornly higher than policymakers would like. Trim held at three per cent in June, but median rose to 3.1 per cent.

“This pushes the three-month annualized rate — which the Bank (of Canada) watches closely — to a six-month high of 3.5 per cent,” Ryan said.

He said retaliatory tariffs pushed up prices for clothing and footwear and health and personal care.

“The door is now firmly slammed shut on a July rate cut from the Bank of Canada,” he said, with a September cut looking “shaky.”

‘Stubbornly stuck’: BMO

Capital had been calling for two more rate cuts this year. “The major measures of core inflation both remained stubbornly stuck right around three per cent,” Douglas Porter, chief economist at BMO Capital Markets, said in a note, adding that the share of goods in the CPI basket that remain elevated hasn’t continued to improve, either.

He said it’s hard to square why core inflation remains so “sticky” given that Canada’s economy is slowing, but attributed it to shelter inflation “receding only gradually” and tariffs.

Rent inflation accelerated in June and mortgage costs were up 5.6 per cent year over year, while tariffs are applying pressure on the price of goods such as vehicles, clothing, footwear and furniture, he said.

“The quick read is that the overall report really gives the Bank of Canada no opening to cut interest rates at the upcoming meeting on July 30,” Porter said, adding that core inflation would need to “materially” cool for a September rate cut to be “in play.”

Though he said a sharp slowdown in the economy — not out of the question — could change the September outlook.

‘Restrained’ retaliation: RBC

“We continue to expect Canada’s restrained approach to retaliation to tariffs from the U.S. administration will limit the impact of the trade war on Canadian consumer prices,” Abbey Xu, an economist at Royal Bank of Canada, said in a note.

A recent RBC report estimated that 86 per cent of imports from the U.S. that were hit by Canadian counter levies were eligible for relief.

In June, she said prices for made-in-Canada products and domestic services grew alongside improvements in business sentiment, “resilient consumer spending trends” and a rebounding labour market.

Xu said the increased share of items in the CPI basket rising more than three per cent annualized marked the “broadest inflationary pressure observed so far in 2025.”

She also said the year-over-year increase in prices for clothing and footwear to two per cent from 0.5 per cent was “notable.”

  • Canada’s inflation rate heats up in June
  • Why more economists think the Bank of Canada is done cutting interest rates

RBC is standing pat on its call that the Bank of Canada is done cutting for now.

“While downside risks to economic growth persist, 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,” she said.