‘No bones about it, this is not what the Bank of Canada wanted to see’
UNSPLASH PHOTO/JP VALERY
Inflation unexpectedly rose in May, led by price increases in services such as air transport, according to the latest data from Statistics Canada.
Canadian inflation came in much hotter than expected last month, undermining the case for a July interest rate cut by the Bank of Canada.
The consumer price index jumped 0.6 per cent in May, bringing inflation from a year earlier to 2.9 per cent, the country’s statistics agency said Tuesday. That's an acceleration from 2.7 per cent in April. Economists had been expecting a drop in the year-over-year rate.
Prices for services appear to be the culprit for the hotter reading. Services inflation on an annual basis jumped to 4.6 per cent in May, from 4.2 per cent previously. The acceleration was led by price increases for travel tours and air transportation, mostly to the U.S. Grocery prices also jumped higher last month.
The data also suggest an increase in underlying price pressures. Core inflation readings tracked by the Bank of Canada were up about 0.33 per cent in May, the strongest one-month gain this year.
The acceleration comes only three weeks since the Bank of Canada lowered interest rates for the first time in four years, and hinted that more cuts are coming. There will be one more inflation print before the central bank holds its next interest rate decision on July 24.
‘‘No bones about it, this is not what the Bank of Canada wanted to see at this point, and clearly shaves the odds of a follow-up July rate cut,’’ Doug Porter, chief economist at Bank of Montreal, said in a note to investors.
