We look for Canadian inflation to level off in May. Wall Street watchers are looking for what could be a CPI number consolidation. Since June 2024, the Bank of Canada has cut rates by 225 basis points, quickly lowering borrowing costs. These cuts will directly address the economic challenges. As Governor Tiff Macklem cautions, we might have to make further cuts, should headwinds related to trade turn worse. Economists expect headline inflation to align with April’s annual increase of 1.7%, as Statistics Canada prepares to release critical inflation data on Tuesday, June 24, 2025, at 12:30 PM.
The YoY reading simply compares prices in May 2023 to those in May 2022. The consensus among analysts seems to be that it will stay at 1.7%, the same level as the last inflation report. As the data release approaches, economists and market participants are closely monitoring the implications of domestic inflation influenced by external factors, particularly U.S. tariffs.
Expectations for Monthly Inflation Growth
Estimates from analysts suggest that Canadian inflation could have increased by 0.5% month-on-month in May. This jump represents a considerable turnaround from the 0.1% decrease recorded in the month of April. The anticipated growth reflects underlying economic conditions and consumer behavior during the month.
The Bank of Canada will provide core inflation measures, which exclude volatile price movements to better indicate underlying inflation momentum. This type of data is incredibly important for these policymakers as they sort through the economic uncertainties in front of them and the effects of international trade.
Market participants are busily pricing in the chances of additional cuts. Current estimates put the odds of a cut in July at around 45%. Specifically, overnight index swaps — one measure of market expectations of future Fed action — show about 36 basis points of easing priced in by year’s end. These fiscal projections show the cautious optimism around Canadian economic recovery, despite strong outside pressures.
Trade-Related Challenges and Their Impact
After interest rates, trade-related challenges are a top-of-mind issue for the Bank of Canada and economists across the country. Even the Governor Tiff Macklem has admitted that it’s tough to separate out the impact of tariffs from the headline CPI numbers. The effects of U.S. tariffs on imports that could possibly pass through to domestic inflation would make the current economic minefield even more treacherous.
As these developments unfold, analysts are keeping a watchful eye. Long-term increases in expenses would damage consumer purchasing power and become a drag on economic expansion overall. Perhaps even more importantly, the interplay between trade policies and inflation dynamics will be crucial to watch in months ahead.
Pablo Piovano, a market analyst, contributed in-depth commentary about the influence of these trends on currency markets. Berrospide thinks that the return of this bearish sentiment might be enough to bring USD/CAD to test its 2025 low of 1.3538, set on June 16.
Broader Economic Implications
With Canadian inflation data about to be dropped, it will no doubt give us critical clues into the country’s economic state. Economists and policymakers will analyze how inflation trends align with their expectations and what that means for future monetary policy decisions.
Next month’s core inflation indicators will tell us much more about the state of price stability. This increased clarity will help make better-informed decisions about interest rates. If inflation pressures keep building from the outside in, the Bank of Canada will have little choice but to act forcefully.
Piovano noted that the duo may be in for even bigger cuts. This is particularly the case if it drops below its critical 200-day SMA at 1.4030. His analysis sounds an alarm for renewed focus on persistent fight. These problems would further increase currency market volatility, impacting international trade and investment choices.