The core measures of inflation, which are closely watched by the Bank of Canada to gauge underlying inflation trends, eased further in June. CPI-median was down to 1.9 per cent from 2.1 per cent in May, while CPI-trim fell to 1.8 per cent from 2 per cent in the prior month. These core measures are important indicators for the central bank, as they strip out volatile components such as energy and food prices to provide a clearer picture of underlying inflationary pressures. The easing in core inflation suggests that the broader trend in prices is moving in the right direction, providing the Bank of Canada with greater confidence that inflation is returning to target.
The Canadian dollar slid following the inflation data, weakening 0.18 per cent to C$1.4045 to the U.S. dollar, or 71.20 U.S. cents. The currency’s performance reflects broader trends in global markets, including the strength of the U.S. dollar and ongoing trade tensions between Canada and the United States. The inflation data provided some relief to markets, as it suggests that the Bank of Canada may have room to maintain its current monetary policy stance rather than having to tighten further. However, the central bank remains vigilant and will continue to monitor inflation developments closely as it seeks to achieve its 2 per cent target.
Economic growth in Canada has been weak but is set to pick up, according to the Bank of Canada’s Monetary Policy Report. After a weaker-than-expected start to 2026, GDP growth is projected to be slightly stronger in 2027 and 2028. The central bank’s outlook reflects expectations that the Canadian economy will gradually recover from the soft patch experienced in the first half of the year. However, risks to the outlook remain, including the potential for further trade disruptions and geopolitical uncertainties that could weigh on economic activity. The Bank of Canada continues to monitor these risks closely and stands ready to adjust policy as needed.
