Canada's Inflation Rate Remains Steady at 1.7% in May, Suggests Bank Won't Cut Interest Rates Soon

Strategic Insights -

The Consumer Price Index, a broad-based measure of inflation, remained steady at 1.7% in May, mirroring the same rate recorded in April. This suggests that the Bank of Canada may not cut interest rates at its upcoming meeting in July, according to economists. The inflation rate has been a key factor in the Bank's decisions to cut interest rates in the past, but this report may not be enough to sway the Bank to make further cuts.

Key Takeaways:

  • The Consumer Price Index (CPI) remained steady at 1.7% in May, exactly the same rate as in April.
  • The Bank of Canada's next interest rate decision is scheduled for July 30, and economists say the current inflation data may not be enough to convince the Bank to cut rates.
  • Gasoline prices dropped 15.5% year-over-year, thanks to the removal of the carbon tax, but rose 1.9% month-over-month.
  • Rents rose 4.5% from a year ago, a slower pace than the 5.2% increase seen in April, with Ontario being a significant contributor to the slowdown.
  • Economists agree that the Bank of Canada will likely hold off on cutting interest rates, citing the ongoing trade war with the US and the uncertainty it brings.
  • TD's Andrew Hencic argues that the trade war is holding the Canadian economy back, which should keep inflation under control and give the Bank room to cut rates.
  • National Bank economists suggest that the May inflation report did not significantly lean towards a cut or a hold when looking to next month's decision.

Statistics:

  • The Consumer Price Index remained steady at 1.7% in May.
  • Gasoline prices dropped 15.5% year-over-year.
  • Rents rose 4.5% from a year ago.
  • Ontario rents were 3% higher than a year ago.
  • The Bank of Canada's next interest rate decision is scheduled for July 30.

Sources:

  • Josh Rubin; www.thestar.com
  • Statistics Canada
  • BMO chief economist Douglas Porter
  • Oxford Economics senior economist Michael Davenport
  • TD's Andrew Hencic
  • National Bank economists Taylor Schleich, Ethan Currie, and Noah Black