Canada's annual inflation rate rose to 2.9% in May, up from 2.7% in April, primarily driven by higher service prices, according to Statistics Canada.
Key Factors Driving Inflation
Service Prices: Prices for services like cellular services, rent, travel tours, and air transportation increased, with travel tour prices up by 6.9% and air transportation prices up by 4.5% compared to last year.
Cellular Services: Interestingly, prices for cellular services decreased by 19.4% from the previous year, although this was a slower decline than April's 26.6% drop.
Impact on the Bank of Canada’s Policies
BMO economist Douglas Porter highlighted that the increase in inflation is not what the Bank of Canada hoped for, potentially affecting the chances of a rate cut in July. The central bank's core inflation measure, which excludes volatile sectors like food and energy, also rose more than expected in May.
Porter mentioned that while a rate cut in July is still possible, the outlook is uncertain due to the fluctuating inflation data. The next set of inflation data will be crucial, as it is scheduled to be released on July 16, just over a week before the Bank of Canada's interest rate announcement on July 24.
Housing and Rent Prices
Rent Prices: Rental prices saw a significant rise, increasing by 0.9% in May from the previous month, bringing the annual increase to 8.9%.
Mortgage Interest Costs: These costs showed a slight decrease to 0.8% in May from April, but the annual increase still stands at a substantial 23.3%.
Porter noted that the slight relaxation in mortgage interest costs is a positive sign amidst the broader inflation concerns.
Grocery Prices
Year-Over-Year Increase: Grocery prices increased by 1.5% year-over-year, slightly up from a 1.4% increase in April.
Monthly Increase: On a monthly basis, grocery prices rose by 1.1%, marking the largest increase since January 2023.
The rise in grocery prices was mainly driven by higher costs for fresh vegetables, meat (especially fresh or frozen beef), fresh fruit, and non-alcoholic beverages.
Conclusion
The recent uptick in inflation highlights the complexity of the economic landscape and the challenges faced by the Bank of Canada. With significant increases in service and rental prices, as well as rising grocery costs, Canadians are feeling the impact of inflation in their daily lives. The upcoming inflation data release will be critical in determining the central bank’s next steps.
Source From: Wealth Professional
Adapted by Jose Gustavo
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