Canada May inflation accelerates at fastest pace in a decade

FILE PHOTO: A woman looks on as she walks past cordoned off aisles of non-essential goods at a Walmart store in Toronto, Ontario, Canada April 8, 2021. REUTERS/Carlos Osorio/File Photo

By Julie Gordon

OTTAWA (Reuters) -Inflation in Canada in May accelerated at its fastest pace in a decade for a second month in a row, driven by surging shelter and vehicle prices, as the impact of the statistical comparison to tanking prices last year eased, data showed on Wednesday.

Canada’s annual inflation rate accelerated to 3.6%, from 3.4% in April, Statistics Canada said. That was slightly ahead of analyst expectations that the annual rate would rise to 3.5%.

“The whole base-effect narrative is getting pretty tired. We’re dealing with durable month-over-month increases that could be supply-chain driven in Canada,” said Derek Holt, vice president of Capital Market Economics at Scotiabank.

Shelter prices rose 4.2% in May, the largest jump since 2008, Statscan said. This as the homeowners’ replacement cost index rose 11.3%, the largest yearly increase since 1987.

Canada’s housing prices have skyrocketed through the pandemic and were up 38.4% year-over-year in May, even as recent homes sales figures suggest the frenzy may be passing.

The jump in inflation comes as many Canadian provinces continued to face shutdowns in May amid a harsh third wave of COVID-19 infections. Most regions have now begun to reopen.

“The amazing thing is if you’re getting relatively hot month-over-month numbers like this in lockdown, just wait until we start to reopen the economy,” said Holt.

CPI common, which the Bank of Canada calls the best gauge of the economy’s underperformance, was 1.8%, just below analyst expectations of 1.9%. CPI median was 2.4% and CPI trim 2.7%.

The Bank of Canada targets the 2% mid-point of a 1-3% inflation control range. It expects inflation to stay around 3% through the summer before easing later in the year.

“For the Bank of Canada … they do see this as being largely temporary, and that it will pass. I don’t think there’s anything here yet to change their view on that,” said Doug Porter, chief economist at BMO Capital Markets.

The central bank said earlier this month that inflation could remain higher than projected if supply imbalances and pressures on capacity persist, which might lead it to reduce stimulus more quickly than currently expected.

The Canadian dollar held on to modest gains after the data, trading at about 1.2176 to the U.S. dollar, or 82.13 cents.

(Reporting by Julie Gordon in Ottawa, additional reporting by Jeff Lewis, Fergal Smith and Nichola Sminather in TorontoEditing by Mark Potter and Bernadette Baum)

Leave a Reply