Could a July rate cut now be off the table?
Inflation accelerated in Canada in May, defying economists’ expectations of a further slowdown and adding another twist in the outlook on interest rates for the rest of the year.
Statistics Canada said on Tuesday morning that the consumer price index (CPI) increased by 2.9% last month compared with the same time in 2023, above a median estimate of 2.6% indicated in a Bloomberg survey of economists and higher than April’s reading of 2.7%.
Two core inflation measures closely watched by the Bank of Canada also jumped, with a 2.85% yearly pace coming in hotter than analyst estimates of 2.7% and helping nix a three-month streak of milder overall price growth.
Shelter costs were up 6.4% year over year, unchanged from the pace set in April, while food price growth accelerated slightly – jumping to 2.4% from 2.3% the previous month – and transportation, health and personal care, recreation, education, and reading all saw increases.
Cooler inflation and a softening labour market were cited by the central bank as key factors in its decision to cut interest rates by 25 basis points on June 5, the first time it lowered borrowing costs for over four years.
It remains to be seen how Bank decisionmakers will view the latest news on the inflation front, although May’s reading means it remains just about within the central bank’s target range of between 1% and 3%.
The Bank is next scheduled to meet on interest rates on July 24, with its June decision sparking optimism among market watchers that a further cut could be in the offing.
