Data released on Tuesday revealed that Canada's yearly inflation rate in May was 3.4%, which was lower than it had been in the previous two years. This makes the case for raising interest rates again as soon as the following month less compelling.
Annual inflation was predicted to fall from 4.4% in April to 3.4%. According to Statistics Canada, the consumer price index increased by 0.4% from one month to the next, just shy of the 0.5% increase that had been anticipated.
The annual rate that benefited from comparison to the significant price increases in May of last year, is the lowest since June 2021 and is generally in line with the Bank of Canada's projection that inflation will moderate to roughly 3% by mid-year.
Early in June, the central bank increased its overnight rate to a 22-year peak of 4.75% in response to a string of unexpectedly positive data points, including an unexpected increase in April inflation, which indicated that the economy was expanding faster than projected.
The Bank of Canada announced after the most recent rate increase that it will assess economic statistics before determining whether to maintain raising the cost of borrowing.
Prior to the publication of the inflation data, there was a 64% chance that a 25 basis point increase would occur on July 12. Now, the probability is 59%. For a quarter-point move in September, they predict a 100% possibility.
The case for a further increase in rates in July isn't as compelling as it was a few weeks ago, according to Capital Economics' Stephen Brown, the deputy chief North American economist. The labor market also loosened in May. In spite of this, Brown maintains that a trek in July is more probable than not.
Before the next decision on rate, the Bank of Canada will provide its business and consumer surveys as well as data on economic development for April, employment figures for June and trade between nations for May.
According to Royce Mendes, the director of macro strategy of Desjardins Group, the core indicators of the Bank of Canada's three-month annualized rates indicated little success in taming inflation.
Mendes reported that the three-month annualized CPI-trim measure slowed to 3.8% from 3.9% in April and that the CPI-median fell to 3.6% from 3.8%. The core services sector excluding shelter, the most recent tracker provided by the central bank, actually increased from 4.7% to 4.9%, according to him.
The mortgage interest expense index increased 29.9% on a year-over-year basis in May, marking the third consecutive month of records rises, according to Statscan. Canadians are still choosing to renew and obtain new mortgages at greater interest rates.
Additionally, the cost of groceries continued to soar, increasing by 9% annually in May, essentially maintaining the rises seen in April.
Tuesday saw the publication of another study from Canada's competition bureau, which urged governments to act to increase competition in the grocery industry so as to cut costs.
Compared to the same month a year before, when supply insecurity caused by Russia's invasion of Ukraine caused a spike in energy prices, the cost of energy dropped 12.4% in May, according to Statscan.
The drop in energy prices was mostly caused by an 18.3% decrease in price of gasoline and the first annual drop in natural gas price since August 2020. A 4.4% increase in prices in April was offset by a 4.0% increase in May when food and energy were excluded.
After reaching a nine-month high of 1.3117, the Canadian dollar traded practically flat at 1.3154 to the dollar, or 76.02 US cents.