Did it feel like your pocketbook was ripped to shreds last month? That’s because it likely was, as inflation across the country soared to the highest level in more than a decade, in what central bank policy makers are calling just a “transitory” phase in price pressures.
According to the latest red-hot Statistics Canada print, annual consumer prices surged 3.6% in May, marking the sharpest year-over-year gain since May 2011. The latest print marks an increase from the 3.4% reported in April, and exceeds the 3.5% inflation rate forecast by economists polled by Bloomberg. Core inflation also surged last month, jumping from 2.1% to 2.3%— the highest reading since 2009.
Every major CPI component noted a price increase last month, particularly shelter prices, which jumped a whooping 4.2% year-over-year, marking the sharpest increase since September 2008. Similarly, the homeowners’ replacement cost index rose by the most since 1987, increasing by an annual 11.3% for the sixteenth consecutive month amid an elevated demand for housing across Canada.
Consumers paid significantly more for durable goods in May, as prices spiked by the most since 1989, up 4.4% from last year’s levels. The majority of the increase was due to an increase in prices for passenger vehicles, which rose 5% year-over-year as the global semiconductor shortage continues to affect automakers around the globe. The CPI for furniture reported the fastest growth since 1982, rising 9.8% last month.
In the meantime, the Bank of Canada brushed off the red-hot inflation spike, arguing that any such price pressures are being driven by base effects, which are distorting year-ago comparisons due to significant price declines at the start of the pandemic. The central bank anticipates that once the base effects subside, the ongoing excess supply in Canada’s economy will once again put downward pressure on prices.
Information for this briefing was found via Statistics Canada, Bloomberg, and the BoC. 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.