The annual rate of inflation dropped sharply last month, but some economists argue a slowdown might not be enough to deter the Bank of Canada from another rate hike in July.
Statistics Canada said Tuesday that the annual inflation rate for May cooled by a full percentage point to 3.4 per cent.
Most economists had the headline inflation rate dropped significantly last month after reaching 4.4 per cent in April — a surprise uptick from 4.3 per cent the previous month and the first time the inflation rate rose in 10 months.
RBC Economics had expected a more modest drop to 3.6 per cent in the May inflation report.
Nathan Janzen, assistant chief economist at RBC, tells Global News the “biggest factor” is the difference in energy price trends this year compared to last. Energy prices were down 12.4 per cent year-over-year in May, according to Statistics Canada.
Prices for gasoline and oil spiked in the spring and summer of 2022 following Russia’s invasion of Ukraine. Janzen explains that with those price increases falling out of the annual inflation data, the year-to-year price growth will be diminished as a result.
Meanwhile, Statistics Canada said grocery price inflation remained elevated, rising 9.0 per cent year-over-year, a figure that was nearly unchanged from April.
Prices of edible fats and oils saw a 20.3 per cent jump, while costs were up 15 per cent for bakery products and 13.6 per cent higher for cereals, according to the agency.
Inflation on food purchased from restaurants accelerated in May, StatCan said, amid ongoing labour shortages feeding into service-sector employers.
Rising mortgage costs tied to the Bank of Canada’s higher interest rates were once again the biggest contributor to the monthly CPI figures, StatCan said. The mortgage cost index rose 29.9 per cent annually, setting a new high for the largest increase on record for the third consecutive month.
Prices for cellular services meanwhile dropped 8.8 per cent year-over-year, the biggest decline since April 2022. Furniture prices were also down 2.9 per cent, and the 3.2 per cent price increase for passenger vehicles was the smallest increase since February 2021.
What will the Bank of Canada do?
Janzen says Tuesday’s CPI release is a “very significant report” for the Bank of Canada in weighing whether it needs to deliver another shock to the economy with a second consecutive rate hike in July.
He says that the Bank of Canada won’t pay too much heed to the decline in the annual figures because of how much it’s tied to last year’s higher prices. Instead, he says policymakers will pay closer attention to the shorter-term monthly trends and the central bank’s preferred “core measures” of inflation in deciding whether enough steam has been taken out of price pressures.
The Bank of Canada’s preferred measures for CPI-median and CPI-trim declined modestly from April to May, though they remain elevated at 3.9 per cent and 3.8 per cent, respectively.
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CIBC senior economist Andrew Grantham said that these metrics continue to “run hotter,” but declined below the consensus of economists’ expectations — that might sway the central bank to “wait a little longer” than July before delivering another possible interest rate hike.
Janzen notes that inflation tends to be a “lagging indicator” — showing the results of what’s already come to pass in the economy.
“Every inflation metric remains far above the two per cent inflation target,” Benjamin Reitzes, BMO’s managing director of Canadian rates and macro strategist, said in a note Tuesday. “Accordingly, Bank of Canada policymakers won’t breathe a huge sigh of relief after this report as core inflation remains sticky and has yet to show signs of a durable slowdown.”
Randall Bartlett, senior director of Canadian Economics, echoed this sentiment.
“We continue to be of the view that the Bank of Canada will hike by another 25 basis points in July, while leaving the door open to further tightening if the data fails to cooperate over the summer,” he said in a report Tuesday.
Other economic releases in the calendar ahead of the July 12 rate decision such as the June jobs report and the Bank of Canada’s own business outlook survey will inform whether it’s done enough to keep bringing inflation down all the way to the two per cent mark.
“Those are all indicators that they’ll use to tell them where inflation is going in the future, not just where it is today,” he says.
Janzen adds that there will have to be significant signs of slowing in these economic releases for the Bank of Canada to return to its pause. If policymakers didn’t think 425 basis points of policy rate tightening was enough, he says it’s not likely an extra 25 basis points will satisfy the central bank that inflation is set to return to two per cent.
EDMONTON – RCMP say a second suspect has been arrested in the killing of an Alberta county worker.
Mounties say 28-year-old Elijah Strawberry was taken into custody Friday at a house on O’Chiese First Nation.
Colin Hough, a worker with Rocky View County, was shot and killed while on the job on a rural road east of Calgary on Aug. 6.
Another man who worked for Fortis Alberta was shot and wounded, and RCMP said the suspects fled in a Rocky View County work truck.
Police later arrested Arthur Wayne Penner, 35, and charged him with first-degree murder and attempted murder, and a warrant was issued for Strawberry’s arrest.
RCMP also said there was a $10,000 reward for information leading to the arrest of Strawberry, describing him as armed and dangerous.
Chief Supt. Roberta McKale, told a news conference in Edmonton that officers had received tips and information over the last few weeks.
“I don’t know of many members that when were stopped, fuelling up our vehicles, we weren’t keeping an eye out, looking for him,” she said.
But officers had been investigating other cases when they found Strawberry.
“Our investigators were in O’Chiese First Nation at a residence on another matter and the major crimes unit was there working another file and ended up locating him hiding in the residence,” McKale said.
While an investigation is still underway, RCMP say they’re confident both suspects in the case are in police custody.
This report by The Canadian Press was first published Sept. 13, 2024.
RICHMOND, B.C. – The Integrated Homicide Investigation Team says the 26-year-old son of a man found dead on British Columbia’s Sunshine Coast has been charged with his murder.
Police say 58-year-old Henry Doyle was found badly injured on a forest service road in Egmont last September and died of his injuries.
The homicide team took over when the BC Coroners Service said the man’s death was suspicious.
It says in a statement that the BC Prosecution Service has approved one count of first-degree murder against the man’s son, Jackson Doyle.
Police say the accused will remain in custody until at least his next court appearance.
The homicide team says investigators remained committed to solving the case with the help of the community of Egmont, the RCMP on the Sunshine Coast and in Richmond, and the Vancouver Police Department.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, have broken off without an agreement following 15 hours of talks.
Joe McCann, president of Amalgamated Transit Union Local 1724, says they stayed at the bargaining table with help from a mediator until 2 a.m. Friday and made “some progress.”
However, he says the union negotiators didn’t get an offer that they could recommend to the membership.
McCann says that in some ways they are close to an agreement, but in other areas they are “miles apart.”
About 600 employees of the door-to-door transit service for people who can’t navigate the conventional transit system have been on strike since last week, pausing service for all but essential medical trips.
McCann asks HandyDART users to be “patient,” since they are trying to get not only a fair contract for workers but also a better service for customers.
He says it’s unclear when the talks will resume, but he hopes next week at the latest.
The employer, Transdev, didn’t reply to an interview request before publication.
This report by The Canadian Press was first published Sept. 13, 2024.
