Canada's annual inflation unchanged at 1.7% in May, core measures slightly ease

Reuters

a day ago

OTTAWA, June 24 (Reuters) - Canada's annual inflation rate in May was unchanged from the previous month at 1.7% as drop in gasoline costs continued to keep the overall index stable while prices of shelter, food and transportation also cooled, data showed on Tuesday.
There are concerns that a raft of tariffs imposed on steel, aluminum and automobiles exported to the U.S. from Canada and subsequent counter-measures from Canada would increase prices across the board.
Those fears have not been reflected in the headline consumer price index as a tax removal on gasoline prices from April is expected keep the cost at the pump down for a year.
Lower interest rates have also consistently eased mortgage costs and lower demand has forced rents to come down for the last several months.
Analysts surveyed by Reuters had expected annual inflation in May to be at 1.7% and monthly inflation at 0.5%.
StatsCan said inflation in May on a monthly basis was at 0.6%, largely led by a seasonal increase in travel, accommodation and energy costs.
Gasoline prices decelerated by 15.5% in May after falling by 18.1% in April on an annual basis, the statistics agency said.
The cost of shelter component of the CPI, which has a biggest weight at 30% in the overall basket, grew by 3% in May, down from 3.4% in April, as both mortgage interest costs and rents eased last month.
The Bank of Canada closely-tracks core measures of inflation - CPI-trim and CPI-median - and both of them eased to 3%, which is the upper band of the central bank's 1% to 3% inflation target range.
CPI-median is the centermost component of the CPI basket when arranged in an order of increasing prices and CPI-trim, excludes the most extreme price changes.
The May inflation data is a critical number which will feed into BoC's decision making for its rates decision on July 30. It will also get the June inflation data before its next rates decision.
If inflation continue to be low, it could tilt the bank towards a rate cut.
After cutting rates aggressively and consistently for nine months since June last year by 225 basis points to 2.75%, it has paused its rate reduction cycle at its last two meetings especially due to the uncertainty hanging around tariffs.
Money markets are betting around 62% chance of yet another hold by the central bank of its policy rate at 2.75% on July 30, when it also releases its monetary policy report.
The Canadian dollar weakened slightly after the data and was trading up 0.1% to 1.3717 against the U.S. dollar, or 72.90 U.S. cents. Yields on the government's two-year bonds were up 0.8 basis points to 2.621%.