Canada’s annual inflation rate edged up to 1.9% in June, from 1.7% in May, driven by rising durable goods prices and a slowing pace of decline in gasoline prices. The latest Consumer Price Index (CPI) data released by Statistics Canada shows that underlying inflationary pressures are continuing despite geopolitical tensions and changing trade dynamics.
One of the main contributors to this acceleration was a slowdown in energy disinflation, with gasoline prices falling 13.4% from a year ago. That was smaller than the 15.5% decline in May. The annual comparison was also affected by a large drop in June 2024, resulting in a base effect that skewed the year-over-year reading.
Excluding energy prices, CPI rose 2.7% year-on-year in June, indicating that inflation was broadly broadly based across categories. The elimination of the carbon tax in April also contributed to the divergence between headline inflation and the core metric.
Durable goods prices continued to rise, with passenger vehicle costs rising 4.1% year-on-year, up from 3.2% in May. Used vehicle prices also posted their first increase in 18 months, driven by inventory shortages.
Amid the ongoing trade war between Canada and the United States, consumers are beginning to feel the cost pressures in affected sectors. Starting July 15, Canada imposed a 25% tariff on $30 billion worth of U.S. goods in response to U.S. tariffs of 25% on Canadian exports and 10% on energy introduced in March.
The tensions have weighed on Canadian trade, causing a record deficit and reshaping relations once close under the Canada-United States-Mexico Agreement (CUSMA). Canada has introduced a temporary exemption process until October 15 to reduce the impact of the tariffs on domestic businesses and consumers.
Clothing and footwear prices rose 2.0% in June compared with just 0.5% in May, partly due to higher import costs. Meanwhile, food inflation eased slightly, with fresh vegetable prices falling for the first time since 2021.
While no special adjustment to the CPI is required to account for the tariff, Statistics Canada explained that final prices to consumers reflect the impact of the levy. As long as trade uncertainty persists, high commodity prices are expected to continue to put pressure on inflation readings going forward.
