Statistics Canada says consumer inflation for May climbed 1.7 per cent, the same level that was seen in April’s reading. However, not all experts are ready to celebrate as underlying inflation may mean interest rates won’t be changing anytime soon.
The 1.7 per cent headline result for consumer price increases largely matched economist expectations, with some highlighting how the removal of the consumer carbon tax may still be playing a role in keeping the overall inflation reading relatively stable.
“We can breathe a little easier since inflation behaved this month. Tariffs remain a risk, but they’re not currently impacting price stability,” says principal economist Andrew DiCapua at the Canadian Chamber of Commerce.
“Strip out energy effects — mostly from carbon tax removal — and inflation has really held steady on many indicators.”
When removing the impact of tax changes, like with the consumer carbon tax, as well as more volatile sectors like food and energy, underlying, or ‘core’ measures of inflation are leading some economists to doubt that the Bank of Canada will cut interest rates anytime soon.
“The bigger issue here is that underlying price pressures remain too high and rising breadth combines to signal that inflation has yet to be licked,” says vice president of capital markets economics Derek Holt at the Bank of Nova Scotia.
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“The Bank of Canada shouldn’t even be thinking about thinking about when to cut rates. Let’s see prospects for a trade and security deal, a fall budget, and further data first.”
Also contributing to the easing of price pressures last month was shelter costs like rent payments, which increased by three per cent, and that’s down from a 3.4 per cent increase in April.
Ontario lead all provinces for rent relief as population growth declined and new housing supply was added to the market in May, according to the agency.
Although grocery food prices did increase by 3.3 per cent in May compared to last year, that’s down from 3.8 per cent in April’s report.
Tuesday’s figures mark the first of two consumer inflation reports the Bank of Canada will see before its next interest rate decision on July 30.
The Bank of Canada is aiming to see inflation, including core measures staying within its target range of one to three per cent, but has been hesitant to cut interest rates at the past two meetings due to uncertainty about the economy.
The central bank held its policy rate steady at 2.75 per cent for the second time in a row earlier this month as it waits to see how Canada’s tariff dispute with the United States will affect inflation and the wider economy.
Lower borrowing costs could mean more financial breathing room for households, especially those with a mortgage or other loan payments.
– With files from the Canadian Press
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