Higher energy prices keep inflation at 2.2 per cent
The Bank of Canada's next interest rate announcement is scheduled for July 11
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OTTAWA—The country’s annual inflation rate rose 2.2 per cent in May for the second straight month as the higher cost of energy applied upward pressure on prices, Statistics Canada said in a new report Friday.
The latest inflation reading followed the 2.2 per cent number for April and 2.3 per cent for March, the agency found in its consumer price index.
The main contributors to inflation last month were led by gasoline prices. Compared to a year earlier, they climbed 22.9 per cent in May and helped drive overall energy prices for the month 11.6 per cent higher.
Inflation also received a lift because Canadians paid more last month for restaurants, airline tickets and mortgage interest costs.
Consumers, however, paid less in May for telephone services, natural gas and digital devices and computers.
The report also found the average of the Bank of Canada’s three measures of core inflation, which leave out more-volatile numbers like pump prices, slowed to 1.9 per cent last month.
The core reading shows these underlying numbers, which are closely monitored by the central bank, cooled somewhat compared to April, when the average hit 2.03 per cent—its strongest pace in six years.
In a separate report Friday, Statistics Canada said retail trade delivered disappointment in April with a contraction of 1.2 per cent that pulled total sales down to $49.5 billion. It marked its first month-to-month decline since December when sales also fell 1.2 per cent.
The April decrease was mostly due to a 4.3 per cent decline in sales by motor vehicle and parts dealers—with new car dealerships reporting a 5.1 per cent drop and used car lots seeing a contraction of 4.1 per cent.
The overall decline was concentrated in Canada’s largest provinces, the agency said. In Ontario, sales fell 2.3 per cent, while Quebec saw a drop of 2.7 per cent.
Statistics Canada, however, did release an upward revision to its retail sales data for March. The updated reading shows a 0.8 per cent increase, compared to its preliminary 0.6 per cent estimate.
Friday’s data will help feed the Bank of Canada’s deliberations as its governing council considers its next interest rate decision.
The central bank’s next interest rate announcement is scheduled for July 11.
For inflation, the bank can use interest rate hikes as a tool to help prevent it from climbing too high. The Bank of Canada tries to keep inflation from moving outside a range of between one and three per cent.
Recent inflation readings—including Friday’s—have been just above the mid-point of the bank’s target range.
It’s unlikely, however, to have a significant impact on upcoming rate decisions because governor Stephen Poloz has predicted inflation to stay above two per cent for all of 2018.
In the spring, the bank raised its inflation projections because of what it described as the temporary effects of higher gas prices and the introduction of minimum wage increases in some provinces.
Poloz has predicted inflation to average 2.3 per cent this year before settling back down to 2.1 per cent in 2019.
He’s raised the trend-setting interest rate three times since last July, but he hasn’t touched the rate since January. It’s been at 1.25 per cent ever since.
For months, experts have been predicting Poloz will raise the interest rate at the July meeting.
But because of growing uncertainty linked to U.S. President Donald Trump’s protectionist agenda some experts are starting to wonder if Poloz will wait a little longer.