OTTAWA — Canada's inflation rate tumbled in May as price shocks caused by the Russian invasion of Ukraine have been mostly absorbed, but economists are still expecting the Bank of Canada to move ahead with another rate hike next month.
Statistics Canada reported Tuesday the annual inflation rate fell to 3.4 per cent in May, largely due to lower gasoline prices compared to a year ago.However, the long-awaited decline in food inflation has yet to come through in Canada. Grocery prices were up nine per cent on an annual basis, showing little improvement from April.
But forecasters at commercial banks are still leaning toward another rate hike, noting underlying price pressures — particularly on the services side — are still high. "Absent a large downside surprise from those data releases, we continue to expect the bank to hike the overnight rate by another 25 basis points in July, before stepping back the sideline for the rest of this year," wrote RBC economist Claire Fan in a client note.
The Bank of Canada justified its most recent rate hike in part by pointing to the slight rise in inflation in April. It’s expected to make its next interest rate decision based on incoming economic data, including Tuesday’s inflation report.
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