Let's dive deeper into the latest economic numbers.
Why is Canada’s inflation still high in June 2025?
Canada's headline inflation in June rose to 1.9%, up from 1.7% in May, still below the Bank of Canada's 2.0% target. But that lower reading is mainly due to the removal of the federal carbon tax.
Inflation's pace measures current increases against the same month a year ago, so 'base year' effects can skew the comparisons. The carbon tax removal is a good example. Last year, this tax resulted in price increases. This year, with the tax removed, the comparison makes prices look lower than they actually are. Also affected in this latest report are higher gasoline and durable goods prices (such as passenger vehicles and furniture).
Stripping out the volatile energy component reveals that inflation remained stuck at 2.7%. Core inflation — the average of median and trimmed measures — is also holding at 3.0%, right at the top of the Bank of Canada's target range.
What does June's inflation report mean for an interest cut this summer? The numbers suggest there's little room for the BoC to lower its police rate right now, despite growing calls from Canadians hoping for budget relief.
The Bank of Montreal chief economist, Douglas Porter, pointed to the murkiness underlying the headline rate: "core is just too sticky. And our measure of the breadth of inflation showed no improvement in the latest month."
There's ongoing debate as to whether economic cooling could help keep inflation in check as the weeks march on, and whether a possible Canada-U.S. trade deal, which could land by July 21, the next Trump deadline, might ease some of the pricing pressure ahead.
Is Canada’s labour market weakening in mid-2025?
Canada's June labour market saw a significant 83,000 jobs created, which helped lower the unemployment rate to 6.9% from 7.0% in May, marking the first decrease since January 2025. Economists had expected a minor job gain and a UR tick up to 7.1%.
The stronger print comes on the back of summer hires, but it's still an encouraging economic sign amid the ongoing U.S. trade and policy chaos.
Will this labour bump be short-lived? That's highly possible, with everything economic dependent on how the U.S. trade agreement is ironed out, and whether inter-provincial and wider international trade improvement can pick up any employment slack.
It is worth noting that summer students (the demographic aged 15-24 years) continue to experience a higher unemployment rate of 17.4%, demonstrating that the underlying labour weakness hasn't disappeared.
However, for now, these numbers work against a BoC cut, not in favour of it.
How are trade tensions affecting Canada’s economic growth in 2025?
In 2024, Canadian GDP grew by more than expected, with a revised annualized pace of 2.6% (real GDP Q4 growth was 0.4%, quarter-over-quarter).
But in 2025, tariff trouble is disrupting a post-pandemic recovery — how much remains to be seen.
So far this year, growth forecasts have sailed into stronger headwinds. Q1 2025 saw an unexpected GDP gain of 0.4%, matching the increase in Q4 2024, likely due to consumers and businesses attempting to get ahead of the trade war.
However, April GDP contracted by 0.1%, dragged down by sectors most affected by the ongoing U.S. trade turmoil. May and Q2 2025 results are also lining up on the negative side.
Will the negative GDP dips be enough to sway the Bank of Canada to cut interest rates again this summer? They might, if inflation doesn't show signs of an immediate surge.
How is economic volatility affecting Canada’s housing market in 2025?
National housing sales fell again in March 2025, and listings increased slightly; home prices remained relatively stable.
Will lowering interest rates (and new mortgage rules favouring younger buyers) encourage some buyers out this spring despite the trade-induced economic turmoil? Perhaps not, if financial concerns override the spring feeling of looking for a new home — or if home prices rise from a lack of inventory.
How is the U.S. economy influencing Canada’s interest rate outlook?
Like it or not, our countries' economies are closely linked.
With a Trump presidency, here are some current concerns:
- U.S. trade policies are causing supply and demand shocks, resulting in increased inflation in both countries
- U.S. tariffs of 25% (or more) on Canadian imports (and Canada's expected retaliations) could devastate our economy (Canada does about 75% of its export business with the U.S.) and eventually un-complicate the BoC's rate cut decisions with an outsized need to spur the economy
- Immigration issues between the two countries may further diminish our labour productivity
- The U.S. dollar is decreasing due to its trade stance, pushing up the Canadian dollar (disinflationary), but also indicates a worrying destabilization of world markets
- Interest rate divergence between the two central banks is now at 2.0%, pressuring input prices
- Proposed U.S. taxes (section 899 of the One Big Beautiful Bill Act) on Canadian investments and companies could have a significant impact on our economy
- Investors are fleeing long-term U.S. Treasury bonds, which is pushing yields up and adding to concerns about the U.S. handling its ballooning deficit — current U.S. debt interest payments add up to more than the defence budget