- The Consumer Price Index (CPI) rose to 3.6% year-on-year (y/y) in May, edging up from 3.4% in April and coming in ahead of the median forecast for 3.5%.
- Rising gasoline prices were a big part of the inflation story, up 43.4% y/y, but not as much as last month when they were up 62.5%.
- Excluding energy, inflation would have been 2.2% (up from 1.6% in April). As in the month prior, prices were up for all major components of the CPI index, with price growth accelerating in all categories but transportation (due to slowing energy prices). The biggest gainers were shelter price inflation, which rose to 4.2% (from 3.2%) and clothing and footwear, which rose to 3.9% y/y in May (from 1.8%). Among smaller categories, furniture prices were up 9.8% y/y and passenger vehicles up 5.0%.
- Seasonally adjusted, the price index rose a robust 0.4% month-on-month, just slightly below the 0.6% gain in May. Price growth was strongest for shelter (up 0.7%), food (+0.45%), and clothing and footwear (+0.43%).
- The Bank of Canada’s core inflation measures all ticked up in May though the spread between measures also increased, CPI-trim led the way, rising to 2.7% (from 2.3%), CPI-median rose to 2.4% (from 2.3%), and CPI-common rose to 1.8% (from 1.5%), CPI-median and CPI-trim both rose to 2.3% (from 2.1%) in May.
Key Implications
- We’re past the heating up stage now. Inflation in Canada is hot. Base-year effects are only partly to blame for the acceleration, as prices rebounded (month-on-month) in May of last year from the plunge in April.
- Canada’s pick up has come even as pandemic restrictions were still holding back activity in high-contact industries. The hottest areas are still places where demand was boosted by the pandemic and supply is either slow to respond or setback – homeowner’s replacement costs and passenger vehicle prices.
- The acceleration in inflation has come faster than expected by private-sector forecasters and the Bank of Canada even as expectations for economic growth have been pared back due to third-wave lockdowns this spring. The Bank of Canada is likely to continue to downplay the acceleration as temporary, but if the economic recovery continues to show its resilience, its tone may shift to ensuring it remains that way.
