Rising inflation in May threatens rate cuts in Canada

According to Statistics Canada, inflation reached 2.9% in May, up from 2.7% in April. The main contributors to this increase were the costs of services and food products. Canadians faced higher prices for rent, mobile services, travel, and airfares. Food prices rose by 1.5% year-over-year, marking the most significant monthly increase since January 2023.

Gasoline prices fell by 1.3% in May. However, housing inflation remained steady at 6.4% year-over-year, with rent costs increasing by 8.9%. The mortgage cost index also continued to contribute to high housing inflation.

Don Desjardins from Deloitte Canada noted that housing pressure persists despite the overall price decline. He believes Canadians are still struggling with rising rent and mortgage costs.

Bank of Canada Governor Tiff Macklem stated that there might be further rate cuts if the economy and inflation meet expectations. However, he emphasized the importance of a balanced approach to avoid lowering rates too quickly.

Desjardins believes that the Bank of Canada is likely to keep rates unchanged at the July 24 meeting. He notes that the central bank may be "methodical" and "deliberate" in the pace of easing. June inflation data, along with fresh employment and GDP figures, will help the Bank of Canada make its next decision.