Canada’s Inflation Rate Falls by 0.4% in May

The shutdown of many services and industries in response to mitigating the infection rate of the coronavirus pandemic has caused the Canadian economy to come to a stand-still. As a result, the annual rate of inflation has been significantly impacted.

According to recent Statistics Canada data, the month of May saw yet an even further drop in the consumer price index by 0.4% when compared to the same time a year prior. Although comparatively the inflation rate in April fell by -0.2%, economists are stipulating that the worst is over. Going forward Canada’s economy will most likely be on a path to recovery after gradual reopening becomes prominent.

May’s negative inflation rate is predominantly attributed to gasoline prices, which were down 29.8% compared to a year prior. If gasoline prices are excluded out of the CPI calculations, then the inflation rate would have theoretically increased by 0.7% compared to the same time last year. Another significant contribution to the drop in the inflation rate was a 21.3% decrease in traveller accommodation, followed by a decline of 9.5% in telephone services.

As a means of targeting the inflation rate, the Bank of Canada (BOC) set the interest rate at 0.25%. However, according to BOC’s governor Tiff Macklem, the interest rate will remain unchanged for the time being while Canada’s economy goes through a period of recovery. Once the country’s economy opens back up, consumer prices will soon follow suit and the inflation rate will start to see increases.

Information for this briefing was found via Bloomberg, Financial Post, and Statistics Canada. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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