Canada Inflation Rises to 2.9%, Dimming Prospects of July Rate Cut
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Loading... - Elke Christoph
- 28 Jun 2024
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In a surprising twist, inflation in Canada accelerated, posing a challenge for policymakers contemplating further interest rate cuts next month.
Statistics Canada reported on Tuesday that the consumer price index (CPI) increased by 2.9 percent in May compared to the previous year, up from 2.7 percent in April. This surge, driven mainly by higher service prices, exceeded the median estimate of 2.6 percent from a Bloomberg survey of economists.
Monthly, the CPI rose by 0.6 percent, surpassing expectations of a 0.3 percent increase and up from 0.5 percent in April. Seasonally adjusted, inflation climbed by 0.3 percent.
The Bank of Canada’s two core inflation measures also picked up pace, averaging a 2.85 percent yearly increase — a rate higher than anticipated by economists.
This latest data interrupts a four-month trend of easing price pressures. The rebound in both headline and core inflation will likely make the central bank cautious about implementing a second consecutive interest rate cut next month, as officials assess whether this uptick is a temporary glitch.
Following the data release, the Canadian dollar initially surged but later settled to trade at $1.3647 per U.S. dollar by 9:24 a.m. Ottawa time. The yield on 2-year Canadian bonds rose by about nine basis points to four percent.
Earlier this month, Governor Tiff Macklem and his team reduced the benchmark overnight rate by 25 basis points to 4.75 percent, marking the first rate cut among the Group of Seven nations. After several months of cooling inflation, they expressed confidence that the inflation rate was on track to reach the two percent target, suggesting that stringent monetary policies were no longer necessary.
However, a three-month moving average of the inflation rate, calculated by Bloomberg, showed an annualized increase to 2.52 percent in May, up from 1.64 percent in April.
