The grocery bill that keeps stubbornly climbing. The rent increase notice that arrived last week. The car repair quote that made you wince. If you’ve felt the persistent squeeze on your wallet lately, you’re not alone – and unfortunately, relief might be further away than we hoped.
After months of gradually cooling inflation, economists are now warning that Canada’s Consumer Price Index likely ticked upward in June, reversing what had been cautious progress toward the Bank of Canada’s 2% target. This shift comes on the heels of surprisingly robust employment numbers that have economists reconsidering their outlook for the remainder of 2025.
“We’re seeing economic resilience that frankly wasn’t in our models six months ago,” explains Terri Sullivan, chief economist at CanMarket Securities. “The June jobs report showing 35,000 new positions – primarily full-time – suggests underlying strength that’s likely to put upward pressure on prices.”
The Statistics Canada report due this Wednesday is expected to show inflation rising to 2.6%, up from May’s 2.3% reading. This modest but meaningful increase reflects what Bank of Canada Governor Tiff Macklem has repeatedly characterized as the “last mile problem” in taming inflation – getting from the 3% range down to the 2% target has proven substantially more difficult than initial disinflation from pandemic-era highs.
For ordinary Canadians, the implications are both immediate and long-term. The possibility of delayed interest rate cuts means mortgage renewals will continue to strain household budgets, while everyday essentials remain stubbornly expensive.
Walking through Toronto’s St. Lawrence Market on a busy Saturday, the evidence is tangible. “I’m selling Ontario strawberries for $7.99 a quart,” says vendor Marco Trentini, who’s run his produce stand for 22 years. “Three years ago, they were $4.99. My suppliers are charging more, my refrigeration costs more to run, and my staff needs higher wages just to make rent. Everything flows downhill to the customer.”
What’s particularly concerning for policymakers is that core inflation measures – which strip out volatile components like food and energy – remain elevated. These metrics, closely watched by the Bank of Canada, suggest underlying inflationary pressures persist throughout the economy despite earlier monetary tightening.
The unexpected strength in Canada’s labour market reveals a complex economic picture. While unemployment ticked up slightly to 6.1%, wage growth accelerated to 4.3% year-over-year in June, significantly outpacing inflation. This wage-price dynamic creates what economists call a “feedback loop” – higher wages support consumer spending, which in turn keeps demand-driven inflation alive.
“The Bank of Canada faces a genuine dilemma,” notes Priya Narayan, senior economist at the Canadian Centre for Policy Alternatives. “They’ve maintained high interest rates to cool inflation, but the economy keeps creating jobs. It’s good news for workers, but makes their inflation targets harder to achieve.”
The housing market provides another inflation pressure point. Despite elevated mortgage rates hovering around 5.8% for a five-year fixed term, Canada’s chronic housing shortage continues to drive both rental and purchase prices upward, particularly in major urban centers.
Recent data from the Canadian Real Estate Association shows the average home price up 4.2% year-over-year nationally, with Toronto and Vancouver experiencing even steeper increases. These housing costs filter into the CPI both directly through shelter components and indirectly as landlords pass increased expenses to tenants.
For small business owners like Margot Chen, who runs a café in Vancouver’s Mount Pleasant neighborhood, the persistent inflation creates multiple challenges. “I’ve raised prices twice this year already, and I might need to again. Coffee beans cost more, dairy costs more, and my staff deserves living wages. But there’s a ceiling to what customers will pay for a latte before they just stop coming.”
Financial markets have already begun adjusting expectations based on these economic signals. The probability of a September rate cut by the Bank of Canada has dropped from 75% in early June to just over 50% today, according to derivatives trading tracked by Bloomberg. Bond yields have climbed, reflecting investors’ belief that higher-for-longer interest rates may be necessary to bring inflation to heel.
For policymakers, the challenge extends beyond just the headline numbers. Regional disparities in inflation continue to complicate the picture, with Alberta and British Columbia experiencing significantly higher price pressures than Atlantic provinces. Additionally, the recent depreciation of the Canadian dollar against its U.S. counterpart adds import-driven inflation pressure, particularly for food, electronics, and other consumer goods.
Looking ahead, economists are divided on whether June’s expected uptick represents a temporary blip or the beginning of a more concerning trend. The consensus view suggests inflation will gradually resume its downward path in the latter half of 2025, but the timeline for reaching the Bank of Canada’s 2% target has been pushed back in most forecasts.
“We’re now looking at mid-2026 before inflation consistently hits target,” predicts Sullivan. “That’s nearly a year later than we projected back in January.”
For everyday Canadians, the message is clear: prepare for inflation to remain a kitchen table issue well into next year. Financial advisors suggest building higher inflation assumptions into household budgets, prioritizing debt reduction while interest rates remain elevated, and adjusting retirement planning to account for the erosion of purchasing power.
As we await Wednesday’s official inflation figures, one thing remains certain – the path back to price stability is proving longer and more winding than anyone anticipated when 2025 began. The resilience of Canada’s economy, while positive in many respects, means the inflation challenge isn’t fading quietly into the rearview mirror.
