Bank of Canada Gets ‘Step in The Right Direction’ for July Rate Cut From ‘So-So’ Inflation data: Economists
The comments below are an edited and abridged synopsis of an article by Jeff Lagerquist, Yahoo Finance
Canada Inflation Rate Holds Steady in May 2025, Bank of Canada Weighs Rate Cut
Canada’s inflation story took a cautious turn in May 2025, with the Canada inflation rate May 2025 holding steady at 1.7%, according to the latest Statistics Canada data. While economists welcomed the continued moderation in price pressures, the outcome may not be enough to prompt an immediate rate cut from the Bank of Canada (BoC) at its July 30 meeting.
On a monthly basis, the Consumer Price Index (CPI) rose by 0.6%, or 0.2% when seasonally adjusted. Key drivers included a slowdown in rent growth—particularly in Ontario—and lower travel costs, though smaller declines in gasoline and cellphone prices tempered the broader disinflationary trend. Shelter costs were up 3% year-over-year, with rent rising 4.5%, down from April’s 5.2%. This rental easing in Ontario had a national dampening effect, highlighting its outsized weight in national inflation metrics.
Bank of Montreal Chief Economist Doug Porter called the result “not bad, but should do better” if the BoC is to consider easing. With the Canada inflation rate May 2025 now consistent for two months, market watchers suggest the next five weeks of data will be pivotal.
TD Bank’s Andrew Hencic pointed to challenges in Ontario’s housing market as a cap on future rent hikes, while homeowners are already seeing relief: the mortgage interest cost index dropped for a 21st straight month, falling from 6.8% in April to 6.2% in May.
Gasoline prices contributed to further relief, declining 15.5% year-over-year, aided by the federal rollback of the carbon tax. Energy prices overall saw continued softness, offering breathing room to consumers.
Transportation costs saw mixed signals. Airfare plunged 10.1% annually, while new vehicle prices jumped 4.9%, likely reflecting the early impacts of incoming tariffs. RBC’s Abbey Xu and CIBC’s Katherine Judge noted that tariff-related inflation could increase in future CPI prints, though this might be offset by a stronger Canadian dollar and softening shelter inflation.
Core inflation measures, which the BoC closely watches, showed mild progress. Both the CPI-median and CPI-trim fell to 3.0% year-over-year in May from 3.1% in April, signaling a tentative step toward the BoC’s 2% target. Judge cautioned that consistent downward momentum would be needed in the next CPI report to give policymakers confidence for a July rate cut.
Consensus estimates had predicted a flat reading for the Canada inflation rate May 2025, and that forecast proved accurate. With several key data points—such as employment figures, retail sales, and BoC surveys—still to come before the next rate decision, market participants are split on the timing of policy easing.
Desjardins’ Randall Bartlett found the numbers “good all around,” suggesting that inflation expectations are beginning to normalize. If this trend holds, he sees the BoC resuming rate cuts in July.
While the US Federal Reserve remains in wait-and-see mode due to tariff uncertainties, the Canada inflation rate May 2025 could pave the way for a more proactive BoC—provided the data continues to cooperate.
Note from BMG
With the Canada inflation rate May 2025 moderating but still above target—and rate cuts not guaranteed—investors may find renewed value in gold and precious metals. These tangible assets offer a historically proven hedge against inflation, currency volatility, and uncertain central bank policy. As traditional market instruments remain unpredictable, gold’s role as a store of value and portfolio diversifier is more relevant than ever.