Analysts and economists are predicting the Bank of Canada will hold its overnight intereste rate in June amid an ongoing increase in core inflation.

A new Statistics Canada report showed that core inflation rose in April despite a 60-basis-point drop in annual inflation from the March level. The reduction in annual inflation was tied primarily to the end of the federal carbon tax.

BoC Govern Tiff Macklem and his team base the central bank’s monetary policy largely on core measures. In April, two of three such measures reached 13-month highs, The Globe and Mail reported.

The Consumer Price Index (CPI) median rose to 3.2% in April from 2.8% in March. Meanwhile, the CPI trim, which does not consider upside and downside outliers, increased 20 basis points to 3.1% from 2.9%.

The BoC targets a 2% inflation range when setting interest rates, the Globe reported.

As a result, money market traders are now betting against a June interest-rate cut, the Globe reported.

“The big relief from lower gasoline prices in April masked an unfriendly inflation picture beneath the surface,” BMO Markets Chief Economist Douglas Porter wrote in a research note, the Globe reported.

Porter noted that the StatCan report came after a weak jobs report gave the BoC a good reason to cut the overnight rate.

“Given a weak growth outlook for much of 2025, we continue to expect further rate reductions, but the Bank may need more time to gain comfort in the inflation outlook,” Porter wrote, according to the Globe.

David Rosenberg, founder of Rosenberg Research wrote that a rise in core price indexes that exclude food and energy was “disappointing” and “places the BoC in a bit of a box,” according to the Globe.

But economists are predicting that previously expected BoC interest-cuts will still occur in 2025.

Jules Boudreau, senior economist for Mackenize Investments, predicted that the BoC will treat the inflation report as neutral due to its ambiguity, the Globe reported.

“We predict a July cut for the Bank of Canada. But the governing council is likely keeping all options open,” Boudrea wrote in a client note, according to the Globe.

Shelter inflation contributed a rise in the headline inflation but fell month-over-month for the first time since August 2022, Nick Rees, head of macro research for foreign-exchange firm Monex Canada, noted.

Shelter inflation but should become “much softer” in the second half of 2025 due to weak housing activity, Citi Economist Veronica wrote in a note, according to the Globe.

Tu Nguyen, an economist with national assurance, tax and consultancy firm RSM Canada, also expects shelter costs to keep cooling.

Slower demand due to tighter immigration policies sent shelter inflation down to its lowest point, 3.4%, since 2021, she wrote, according to the Globe.

Pictured: Bank of Canada Governor Tiff Macklem

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