Inflation remained stable at 1.7 % in May in Canada

The annual rate of inflation was maintained at 1.7 % in May in the country. Nevertheless, the slowdown in the cost of housing costs contributed to mitigating prices pressure, Statistical Canada announced on Tuesday.

Annual inflation was also established at 1.7 % in May in Quebec, after being 2.2 % in April.

Housing costs increased from 3 % from one year to the other in May. Consequently, according to Statistics Canada, which marks a slowdown compared to 3.4 % in April.

The increased availability of rental housing. However, combined with a slowdown in population growth compared to last spring, led to a slowdown in rent growth in May, according to Statistics Canada. Meanwhile, Growth has slowed the most in Ontario.

Mortgage interest costs have slowed down for a 21st consecutive month. inflation remained stable 1.7 % new Furthermore, thanks to the drop in interest rates announced by the Banque de Canada.

Economists mainly expected that inflation remains unchanged in May. Moreover,

The withdrawal of carbon pricing for consumers of the federal government continued to temper annual inflation concerning the price of petrol. Nevertheless, but a lower monthly drop in prices at the pump compared to the same period last year limited this decline.

The conflict between the United States. In addition, Iran and Israel in the Middle East could limit the relief that Canadians will find at the pump this summer, warned Nathan Janzen, deputy chief economist of RBC.

The fears of a broader conflict in the region could lead to an increase in oil prices. In addition, if the markets fear a disruption of production.

“This is the main immediate effect on consumer prices. Nevertheless, inflation remained stable 1.7 % new This actually happens at the pump with the rise in petrol prices, ”explained Mr. Janzen about geopolitical instability.

However. he pointed out that the oil shock, if he materializes, should last for months before starting to affect transport costs and store prices.

Food prices at grocery store increased by 3.3 % on an annual basis in May, half a percentage of less percentage than the increase observed in April.

Statistics Canada said that new vehicles have increased in May 4.9 % from one year to another, especially due to higher prices for electric vehicles.

Food. vehicles are two sectors where the tariff dispute between Canada and the United States could be reflected in inflation data, said Janzen, but he warned that it was still too early to observe the general effects of trade war on prices.

Inflation excluding taxes inflation remained stable 1.7 % new – excluding the effects of the suppression of carbon pricing – also remained stable at 2.3 % last month.

The Governor of the Bank of Canada. Tiff Macklem, said last week that the central bank would pay particular attention to this figure, trying to see beyond temporary effects to understand the real evolution of inflation in the context of customs duties.

The underlying inflation indicators. closely inflation remained stable 1.7 % new monitored by the Bank of Canada, have fallen back from a tenth percentage point to establish itself at 3 % in May.

Inflation remained stable 1.7 % new

Hopes of lower rates diminish

The Bank of Canada maintained its key rate at 2.75 % earlier this month for the second consecutive time, pending clarification on the evolution of commercial policy and its repercussions.

The BMO chief economist. Doug Porter, said on Tuesday in a note to his customers that the underlying inflation was playing in the right direction, but probably not alone to convince the Bank of Canada to lower its rates again after two consecutive maintenance.

The central bank will examine the inflation figures for June before its next announcement on interest rates scheduled for July 30.

“The data of the next five weeks will ultimately determine inflation remained stable 1.7 % new the decision. but the probability of a drop in July is now lower given the weakness of the IPC,” he said.

A distinct press release from Statistics Canada published on Tuesday provided an estimate of manufacturing sales in May. The first signs suggest a monthly decrease of 1.3 %, after a decrease of 2.8 % in April, the tariff dispute between Canada and the United States having weighed on activity.

The main economist of the TD bank. Andrew Hencic, explained that the trade war should maintain the economy at a low level in the coming months, thus attenuating inflationary pressures.

“As was the case this year. the prospects greatly depend on the development of commercial negotiations, but we believe that the difficult economic context should give the Bank of Canada the possibility of carrying out two other decreases this year,” he said.

Mr. Janzen is less convinced than new interest rate drops are justified.

Although signs of economic weakness appear in manufacturing data. sensitive to trade, he noted that consumer spending has been good so far in the trade conflict. Public spending should also increase in the coming months. he added, helping to support growth in the face of customs duties.

“In this context. our own basic scenario is that the Bank of Canada does not need to further reduce its interest rates,” said Janzen. But if the economy was to slow down more than expected, the central bank could intervene more. ”