Canada inflation rate cools in May, making July rate hike less likely

Frederick Owens
June 24, 2017

The Bank of Canada's core measures were either flat or down, with CPI-median edging down to 1.5 % (from 1.6%), CPI-trim to 1.2% (from 1.3%), and CPI-common unchanged at a feeble 1.3%.

The central bank said in a statement that "the reference rate has reached a level that is consistent with the process of efficient convergence of inflation to the 3% target".

"Canada's inflation rate is now not only well below Britain and the USA, but it is now also lower than that in China and the European Union", said Porter.

Food prices have dropped by 0.1 per cent in the year up to May, the data agency calculates, with meat and bakery products contributing the most to the drop.

The data comes as the economy strengthens and the Bank of Canada prepares to make a scheduled interest rate announcement on July 12.

Figures released Friday by Statistics Canada showed that the inflation rate hike was down from a 1.6% annual pace in April.

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Year-on-year, core CPI advanced 0.9% in May, compared to a 1.1% increase in the previous month.

Last week, governor Stephen Poloz signalled he's inching closer to a hike as the economy builds momentum in several key areas.

Meanwhile, gasoline prices rose 6.8% from May of a year ago, although that was slower than the previous month's almost 16% gain.

But despite the slower price growth, gasoline remained one of the biggest upward contributors to inflation last month, along with other costs associated with shelter and transportation. Statistics Canada said this was largely attributable to a move by the government of Ontario - Canada's most populous province - to legislate lower power prices for households.

"The market thinks that the inflation peak is near and that Banxico will end its cycle this Thursday", Finamex analyst Guillermo Aboumrad said in a note to clients.

Still, food price declines have been moderating in recent months and the cost of fresh vegetables rose for the first time since August 2016.

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