Inflation rate expected to drop. What that means for the Bank of Canada
Global News
The Bank of Canada is likely to be watching the May inflation report closely. Here's what it could mean for the central bank's next interest rate decision in July.
The annual rate of inflation likely dropped sharply last month, economists say, but some argue a slowdown might not be enough to deter the Bank of Canada from another rate hike in July.
Statistics Canada is set to release its consumer price index (CPI) report for May on Tuesday at 8:30 a.m. ET.
Most economists are expecting the headline inflation rate dropped significantly last month after reaching 4.4 per cent in April — a surprise uptick from 4.3 per cent the previous month and the first time the inflation rate rose in 10 months.
BMO Economics is projecting inflation fell by a full percentage point to 3.4 per cent in May, marking a two-year low in the annual rate. That’s despite signs that the housing market was picking up steam again last month, which BMO senior economist Priscilla Thiagamoorthy said in a note to clients Monday will put more pressure on the shelter component of CPI.
Meanwhile, RBC Economics projects a more modest drop to 3.6 per cent in the May inflation report.
Nathan Janzen, assistant chief economist at RBC, tells Global News the “biggest factor” is the difference in energy price trends this year compared to last.
Prices for gasoline and oil spiked in the spring and summer of 2022 following Russia’s invasion of Ukraine. Janzen explains that with those price increases falling out of the annual inflation data, the year-to-year price growth will be diminished as a result.
For this reason, Janzen says that the Bank of Canada won’t pay too much heed to the decline in the annual figures. Instead, he says policymakers will pay closer attention to the shorter-term monthly trends and the central bank’s preferred “core measures” of inflation in deciding whether enough steam has been taken out of price pressures.
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