Canada shaved a full percentage point off its annual inflation rate in May, but there are ample signs that restoring price stability will be a difficult and lengthy task for the Bank of Canada..
For instance, gasoline prices – which peaked in the late spring of 2022 – fell 18.3 per cent on an annual basis. Grocery costs are still climbing at robust rates. Those prices rose 9 per cent on an annual basis, down slightly from 9.1 per cent in April. Bakery products rose 15 per cent, while cereal products jumped 13.6 per cent. Price growth accelerated at restaurants.
Excluding mortgage interest costs, the CPI rose 2.5 per cent in May from a year earlier, down from 3.7 per cent in April. The Bank of Canada is aggressively raising interest rates to tamp down demand and bring inflation under control. However, consumer spending has been exceptionally strong to start the year. This, along with other strong economic data, convinced the bank that monetary policy was not restrictive enough to subdue CPI growth.
Andrew Grantham, senior economist at CIBC Capital Markets, said that inflation could soon fall below 3 per cent.
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