Canada inflation surges

Canada's inflation unexpectedly surged in May, posing a challenge for policymakers as they consider further interest rate cuts next month

By Ahmed Azzam | @3zzamous | 25 June 2024

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  • Canada inflation quickens to 2.9%, reducing odds of July cut

  • Fed's Bowman warns of inflation risks

Canada inflation unexpectedly rises

Statistics Canada reported on Tuesday that the consumer price index (CPI) rose 2.9% in May from a year earlier, up from 2.7% in April. This increase was largely driven by higher prices for services. The rise exceeded the median estimate of 2.6% in a Bloomberg survey of economists.

On a monthly basis, the CPI climbed 0.6%, surpassing expectations for a 0.3% gain and up from 0.5% in April. Seasonally adjusted, the CPI rose 0.3%.

The latest data interrupts a four-month trend of easing price pressures. The acceleration in both headline and core inflation will likely make the Bank of Canada cautious about proceeding with a second consecutive interest rate cut next month. Policymakers will need to determine if this inflation spike is a temporary anomaly.

Fed rate cuts not yet appropriate: Bowman

Federal Reserve Governor Michelle Bowman highlighted several upside risks to the inflation outlook and reaffirmed the necessity of maintaining high borrowing costs for an extended period.

“We are still not yet at the point where it is appropriate to lower the policy rate,” Bowman said in prepared remarks on Tuesday. “Given the risks and uncertainties regarding my economic outlook, I will remain cautious in my approach to considering future changes in the stance of policy.”

During a moderated discussion following her speech, Bowman reiterated that she does not anticipate any interest-rate cuts this year, a stance she first articulated on May 10. Instead, she now expects any rate reductions to occur in future years.