© Reuters. FILE PHOTO: A person shops in the beverage aisle at a grocery store in Toronto, Ontario, Canada November 22, 2022. REUTERS/Carlos Osorio/File Photo
By Ismail Shakil and Steve Scherer
OTTAWA (Reuters) -Canada’s annual inflation rate came in at 3.4% in May, its slowest pace in two years, data showed on Tuesday, weakening the case for another hike next month.
Analysts polled by Reuters had expected annual inflation to drop to 3.4% from 4.4% in April. Month over month, the consumer price index was up 0.4%, Statistics Canada said, a tick below forecasts for a 0.5% rise
The annual rate, which benefited from a comparison to last May’s strong price increases, is the slowest since June 2021 and broadly in line with the Bank of Canada’s expectation that inflation would cool to around 3% by mid-2023.
The central bank hiked its overnight rate to a 22-year high of 4.75% earlier in June after a series of surprisingly strong data, including an unexpected uptick in April inflation, which showed that the economy was running hotter than anticipated.
After the last rate increase, the Bank of Canada said it would be gauging economic data to decide whether to keep raising borrowing costs.
“With the labour market also loosening in May, the case for another rate hike in July is not quite as strong as it seemed a few weeks ago,” said Stephen Brown, deputy chief North America economist at Capital Economics.
The average of two of the Bank of Canada’s core measures of underlying inflation, CPI-median and CPI-trim, came in at 3.9% compared with 4.3% in April.
Canadians have continued to renew and take new mortgages at higher interest rates, resulting in the mortgage interest cost index rising 29.9% on a year-over-year basis in May, the third consecutive month of record increases, Statscan said.
Grocery prices also continued to surge, rising 9% year over year in May, nearly unchanged from the increases recorded in April.
Energy prices slid 12.4% in May compared with the same month a year earlier, when supply uncertainty surrounding Russia’s invasion of Ukraine led to a surge in energy prices, Statscan said.
An 18.3% drop in gasoline prices and the first year-over-year decline in prices since August 2020 contributed to the energy price deceleration.
Excluding food and energy, prices rose 4.0% compared with a 4.4% rise in April.
The Canadian dollar weakened 0.2% to 1.3177 to the greenback, or 75.89 U.S. cents, after the inflation data.