July core inflation data and looming US tariffs on $20 billion in Canadian goods may pressure BoC rate-hike expectations lower.
Canada’s July Consumer Price Index is expected to show core inflation remaining below the Bank of Canada’s 2% target, reinforcing expectations for an extended policy pause. Core CPI, excluding food and energy, is projected at 1.8% year-over-year for a second consecutive month, while the average of trim and median measures is seen at 1.85%.
The BoC had forecast headline CPI at 2.5% and core inflation at 2.0% for the third quarter. However, persistent sub-2% core readings and upcoming US tariffs on nearly $20 billion in Canadian imports—equivalent to 0.85% of GDP—could weigh on the Canadian dollar and reduce bets for future rate hikes.
Markets currently price in 65 basis points of tightening over the next 12 months, but anchored inflation and trade friction may prompt a repricing of those expectations.