The Consumer Price Index (CPI) unexpectedly rose 2.9% in May year-over-year, up from 2.7% in April. This increase was mainly due to higher service costs and, to a smaller degree, food prices. Service prices climbed in May, driven by cell phone plans, travel, rent, and flights. Price growth for goods remained at 1%, while food prices rose faster.
The Bank of Canada's core inflation measures, the trim and median rates, filter out volatile prices to reveal the underlying inflation trend. Both of these measures were slightly higher in May than economists had expected.
Chief Economist Dr. Sherry Cooper highlighted shelter costs as a massive component of inflation this cycle, led by rising rent and mortgage interest costs. Rent prices jumped 0.9% in May, pushing the annual increase to 8.9% y/y. While mortgage interest costs eased slightly, they remain the largest contributor to inflation.
According to the Canadian Real Estate Association (CREA), national home sales declined slightly by 0.6%, falling slightly short of the ten-year average.
With slower sales and new listings up slightly in May, the national sales-to-new listing ratio dropped to 52.6% in May, remaining within the 45%-65% range of balanced market conditions. Once the Bank continues its rate cuts, housing market activity will likely increase over the next year, according to Dr. Sherry Cooper.
May’s inflation data fell short of the Bank of Canada's expectations, which has reduced the likelihood of another rate cut at their next meeting on July 24. However, the upcoming release of June inflation figures on July 16 could influence their decision. Dr. Sherry Cooper expects the next interest rate cut will likely be postponed until September unless June inflation significantly declines.
Stay tuned for further updates!
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