OTTAWA – Economists predict an increase in the pace of inflation for June, while the Bank of Canada continues to seek insights into tariff impacts reflected in price data. Statistics Canada is anticipated to release the consumer price index (CPI) data for June on the upcoming Tuesday.

CIBC forecasts that the year-over-year inflation rate may rise by a tenth of a percentage point to 1.8 percent. Katherine Judge, CIBC's senior economist, indicated in a recent interview that an uptick in goods inflation is expected to contribute to overall price pressures during this period. She attributed some of these pressures to Canada’s ongoing tariff dispute with the United States.

Conversely, Judge noted a potential easing of rental prices which could alleviate some of the upward pressure on shelter inflation. "The rent index has not yet reflected the drops in rents we've observed for vacant units across the country, which may partly offset tariff impacts," she explained.

The CPI release for June is significant as it provides the Bank of Canada with crucial data ahead of its next interest rate decision scheduled for July 30. Financial markets currently expect the central bank to maintain its policy rate for the third consecutive time at this meeting. As indicated by LSEG Data & Analytics, the probability of a quarter-point cut has decreased to just 13 percent following a surprising gain of 83,000 jobs reported by StatCan for June.

Tiff Macklem, the governor of the Bank of Canada, mentioned last month that policymakers have detected "unusual volatility" in inflation figures. He suggested that underlying inflation might be "firmer" than previously anticipated, potentially due to increased costs associated with tariffs between Canada and the U.S.

The Royal Bank of Canada (RBC) anticipates that the annual inflation rate surged to 1.9 percent in June. RBC senior economist Claire Fan expressed that core inflation is likely to remain stubborn, hovering at the upper limit of the Bank of Canada's target range of one to three percent. She emphasized that food inflation will serve as a significant driver for the consumer price index.

While the Bank of Canada and other economic analysts have been scrutinizing price data for indications of pressures stemming from the U.S. trade dispute, Fan noted that she does not expect "a lot of tariff impact to show up yet." Moreover, she pointed out that inflation data tends to be retrospective; hence, she will rely more on the Bank of Canada's forthcoming surveys of businesses and consumers next week. These quarterly surveys are instrumental for the central bank to assess how businesses are managing tariff pressures and the speed at which they may transfer costs to consumers.

Deputy Governor Sharon Kozicki highlighted last month that the Bank of Canada is increasingly utilizing alternative data sources, such as surveys and restaurant reservations, to navigate the uncertainties present in traditional economic data. "It's a very limited amount of our data that we're currently seeing on inflation, but the business outlook survey has historically served as a valuable indicator of future expectations," Fan noted.

Judge mentioned that although she typically gives more weight to CPI data, the unexpectedly robust June jobs report from StatCan is likely to prompt the central bank to remain on hold until September. BMO's managing director of Canadian rates and macro strategist, Benjamin Reitzes, indicated in a note Friday that he expects the headline inflation to rise to two percent in June, attributing this increase to heightened food and transportation costs and less favorable year-over-year comparisons.

Reitzes also observed that the breadth of inflation appeared to widen in May's CPI figures and stated that the Bank of Canada would be looking for signs of a reversal from the previous month to regain confidence that price pressures may be easing. He remarked, "Following the significant job gain in June, it will require a marked decrease in underlying inflation for the BoC to even contemplate a rate cut in July."

This report highlights the complexities and dynamics of the current economic landscape in Canada as stakeholders watch upcoming inflation data closely to make informed decisions regarding monetary policy.