Annual inflation rate climbs to 3.6 per cent in May, highest in a decade
By Jordan Press, The Canadian Press
By Jordan Press, The Canadian Press
OTTAWA — Prices across the country rose at their fastest annual rate in a decade last month, with the promise of similar numbers through to the fall as consumers are able to spend more freely.
Statistics Canada said the 3.6-per-cent increase in the consumer price index in May was the largest yearly increase since May 2011 and outpaced the 3.4 per cent reading in April, which at the time was the fast annual rate in nearly a decade.
Part of the rise in inflation is due to comparing prices to the low levels seen last year at the start of the pandemic for such items as gasoline, furniture and beef products.
Excluding gasoline, which was up 43.4 per cent compared with the same month one year ago, the consumer price index would have been up 2.5 per cent.
Also adding to price increases are supply-chain issues that have made it more expensive to build new homes or cars, with prices being passed along to consumers.
However, Statistics Canada said the increase in year-over-year price growth in May wasn’t solely because of this comparison. It noted more recent price pressures are also driving inflation, with rising housing costs among the leading reasons.
The pickup in prices has come even as public health restrictions held back activity in high-contact sectors, said TD senior economist James Marple, noting the acceleration in inflation has come faster than forecasters and the Bank of Canada expected.
Prices are expected to rise over the summer as provinces ease public health restrictions, businesses look to make up for lost revenues and consumers have more places to spend their cash.
“Retailers have had a very tough time, bars and restaurants have had a very tough time over the past year and they’re going to want to make up for some of that lost ground with higher prices,” CIBC senior economist Royce Mendes said.
“They’re going to want to pass on those costs and the key to remember here is that consumers can actually absorb those costs, maybe like never before because of all the savings that is built up during the pandemic.”
The Bank of Canada expects inflation to hover around three per cent over the summer before easing later this year, then returning toward the bank’s two per cent target, once prices stop being compared with the lows seen in March and April of last year, and as supply-chain issues work themselves out.
Statistics Canada said the average of the three measures for core inflation, which are considered better gauges of underlying price pressures and closely tracked by the Bank of Canada, was 2.3 per cent in May, up from 2.1 per cent in April. The reading in May was the highest seen since April 2009.
BMO director of Canadian rates Benjamin Reitzes said in a note that while it’s still too early to say whether firmer inflation is here to stay, the persistent strength in the figures may make the central bank a bit less comfortable with its accommodative monetary policy.
Bank of Canada governor Tiff Macklem has said the bank intends to keep its key policy rate at 0.25 per cent until the economy has recovered and inflation is sustainably back on target, which is expected to happen in the second half of 2022.
Macklem is scheduled to appear before a Senate committee on Wednesday night.
The Statistics Canada report said homeowner replacement costs, which includes prices for new housing, rose 11.3 per cent year-over-year in May, the largest increase since 1987. With the jump in May, Statistics Canada said that now makes 16 consecutive months of price increases driven by buyers looking for larger homes and higher construction costs.
Durable goods like vehicles were up 4.4 per cent in May from their levels in May 2020, which the statistics agency noted came against the backdrop of low interest rates and rising consumer confidence.