Canada: Inflation jumps to eight-year high
June 29, 2011
In May, consumer prices increased a seasonally adjusted 0.2% over the previous month, a notch below both the monthly price increase in April and market expectations of 0.3%. As a result, annual headline inflation stepped up from April's 3.3% to 3.7% in May, coming in above market expectations of a 3.3% rate and overshooting the upper band of the 2.0%1% inflation target for a third consecutive month. Energy prices continued to be the main driver of headline inflation, increasing 16.6% in May (April: +17.1% year-on-year) mainly as a result of higher gasoline prices. Inflation excluding energy costs would have been 2.4% in May, which is nevertheless up from 2.0% registered in May as prices for food accelerated in May on both an annual and monthly basis. Annual core inflation, which excludes oil and fresh food prices, stepped up from 1.6% in April to 1.8% in May. That said, all other things being equal, inflation is likely to ease somewhat in the coming months as a result of a slowdown in gasoline price rises in June as well as the base effect associated with the implementation of the harmonized sales tax in July last year. The Bank of Canada expects headline inflation to average 2.5% in 2011 and 2.1% in 2012.