OTTAWA – Tariff impacts are projected to maintain elevated underlying inflation levels in July, as indicated by economist Randall Bartlett from Desjardins. This anticipation comes despite expectations that the overall inflation figure may decrease.
Statistics Canada is scheduled to release the inflation figures for July on Tuesday. According to LSEG Data & Analytics, a survey of economists predicts that annual inflation has cooled to 1.7 percent last month, down from June’s reported rate of 1.9 percent.
Bartlett suggested that the headline inflation figure might drop to 1.6 percent in July, which is better than initially expected, as falling energy costs contribute to relieving some price pressures. “We’re expecting it to be a bit softer than what we saw back in June. So, from a headline perspective, anyway, that’s overall pretty positive news for Canadians,” he stated during an interview.
In contrast, RBC’s forecast is higher than the consensus, anticipating that July’s annual inflation rate will hold steady at the 1.9 percent observed in June. Economists Nathan Janzen and Claire Fan, in a note to clients, indicated that the removal of the consumer carbon price at the beginning of April continues to artificially suppress headline inflation. However, they caution that underlying price pressures are likely to persist in July.
“Underlying trends have surprised upward this year, partly due to tariff impacts on products like food and vehicles, but also from increased prices for domestic services,” they noted. The Bank of Canada’s preferred core inflation metrics were observed to float slightly above 3 percent in June, based on Statistics Canada data.
Bartlett projected that these core inflation metrics will remain between 2.5 percent and 3 percent for the remainder of the year as a result of the ongoing tariff dispute between Canada and the United States, which is expected to exert upward pressure on prices. He mentioned he would be monitoring if more businesses started to pass the costs from tariffs onto consumers in July.
Recent consumer price index data released from the United States indicated a tariff impact, evident in higher prices for items such as shoes and furniture. While Bartlett believes that the majority of tariff-related price impacts were felt in April and May, he stated that Canada is likely to continue experiencing the effects of border levies on food and durable goods.
“That’s going to put persistent upward pressure on price growth in Canada,” he emphasized. On July 30, the Bank of Canada held its benchmark interest rate steady at 2.75 percent as it awaits more insights into how the Canada-U.S. trade dispute may be influencing the economy. The recent summary of deliberations from that decision indicated that the central bank’s governing council remains cautious regarding tariffs' influence on inflation.
Council members noted that while the effect on consumer prices “appeared to be modest so far,” the true impact of tariffs is just beginning to manifest in the data. Although inflation expectations among businesses remain well-anchored according to recent surveys, the governing council pointed out that the costs associated with seeking new suppliers amid shifting global trade dynamics could potentially drive prices higher.
“Overall, members agreed that it was still too early to assess how tariffs and the rewiring of trade would affect economic activity and inflation in Canada,” the summary reflected. Bartlett also mentioned that he anticipates forthcoming economic data will pave the way for a quarter-point interest rate cut at the Bank of Canada’s next decision scheduled for September 17.
However, this expectation hinges upon core inflation readings demonstrating improvement in the forthcoming Consumer Price Index (CPI) reports for July and August. Bartlett remarked, “If we see that there’s less passthrough from tariffs into inflation than we’re expecting… we think there’s an opportunity for the Bank of Canada to cut further.”
