Canada’s inflation rate slowed in May, driven by a drop in gasoline prices while mortgage interest costs remained high. The annual inflation rate fell to 3.4%, matching expectations. This eases pressure for the Bank of Canada to raise interest rates.
The three-month moving average of core measures, excluding food and energy, reached its lowest level since August 2021 at 3.72%. This suggests that underlying inflation pressures are easing, giving the Bank of Canada more room to pause its tightening cycle.
However, the Bank of Canada remains vigilant and ready to take action if necessary. It has raised interest rates five times since September 2021, bringing the benchmark rate to 4.5%.
The recent slowdown in inflation may be a temporary blip or a sign of a more sustained decline. More information about the central bank’s view on the outlook for inflation will be provided in its next monetary policy report on July 13.
Factors contributing to a further slowdown in inflation include lower energy prices, improved supply chains, and the dampening effect of the Bank of Canada’s tightening cycle on economic growth.
On the other hand, a surge in demand or a major geopolitical event could lead to an increase in inflation in the future.
Overall, the outlook for inflation in Canada is uncertain. While the recent slowdown is encouraging, it remains to be seen if it is a lasting trend. The Bank of Canada will closely monitor the situation and take necessary action to control inflation.
