Higher pop in inflation lights up dollar

OTTAWA — Canada’s annual inflation rate jumped to the highest level in eight years last month, rising to 3.7 per cent as big increases in gasoline prices pushed the index to a new post-recession peak.

OTTAWA — Canada’s annual inflation rate jumped to the highest level in eight years last month, rising to 3.7 per cent as big increases in gasoline prices pushed the index to a new post-recession peak.

On a month-to-month basis, consumer prices rose by a significant 0.7 per cent in May from where they were in April, Statistics Canada reported Wednesday.

The magnitude of the increase was unexpected. Economists had predicted it would stay at 3.3 per cent for the third straight month.

The surprisingly strong increase in prices paid by consumers present the Bank of Canada with a dilemma less than three weeks before its governor and his deputies meet to set short-term interest rates for the country.

Market reaction following the Statistics Canada report suggested the chances of a rate hike — if not July 19, then possibly in early September — had increased somewhat.

The Canadian dollar rose more than a penny against the U.S. greenback Thursday and traded above $103 cents US for the first time in a week.

But analysts were not convinced Bank of Canada governor Mark Carney will be spooked enough to risk further depressing a weak economy by raising the cost of borrowing. For one thing, Carney had warned as far back as April he expected inflation to push above three per cent during the spring, although he likely hadn’t envisioned it reaching this high.

For another, most of the increase is attributed to one cause — petroleum-based energy prices.

Statistics Canada noted that gasoline prices were 29.5 per cent higher in May than they were a year earlier, the largest increase since September 2005 in the aftermath of hurricane Katrina. Gasoline in May hit just below the record high reached in July 2008 just prior to the economic meltdown.

Excluding gasoline, the annual inflation rate would be 2.4 per cent, still above the bank’s target rate but less threatening.

What will give the central bank some comfort is that core inflation — which excludes volatile items like energy and some kinds of food — rose only moderately to 1.8 per cent and remains below the desired two-per-cent target. As well, gasoline prices are known to have fallen somewhat in June, and the HST effect in Ontario and British Columbia — estimated at as much as 0.7 percentage points to the index — will be coming off in July.

TD Bank deputy chief economist Derek Burleton said indications are that inflation has hit the “high-water mark” and will soon start heading lower.

“All said, look for headline CPI inflation to fall back to below three per cent during the second half of 2011 and for core price inflation to stay below the Bank of Canada’s inflation target of two per cent,” he said.

Analysts still questioned whether Bank of Canada governor Mark Carney is prepared to take the policy interest rate north of one per cent given the risks the to global and Canadian economies.

“In normal times, today’s report and the recent trend would strongly argue for hikes coming as early as the next meeting but with the Bank of Canada’s wobbly attitude as of late, this prospect is highly uncertain,” said Jimmy Jean, an economic strategist for Desjardins Capital Markets.

But Jean said it would be a mistake to underestimate inflation, even if some of the reasons behind May’s scary number are temporary.

“This is the highest we’ve had since 2003, there’s no way a central bank wouldn’t be preoccupied by this,” he said. “It’s not just gasoline. A lot of the stuff that showed modest inflation in March and April actually accelerated in May.”

CIBC economists agreed that the fear of inflation could force Carney’s hand before the year is out.

May’s data showed price pressures building across the spectrum. Prices increased at a faster rate in May than the previous month in all major components except shelter. The increase was the highest since March 2003.

The cost of transportation rose strongly in May by 9.1 per cent, although largely due to the contribution of gasoline.

Another concern is that food prices continued to increase, 3.9 per cent overall, and 4.2 per cent on food purchased at stores. Individual items registered even bigger gains — meat cost 5.4 per cent more than a year ago, bread 10.6 per cent, and fresh milk rose 4.3 per cent.

Consumers also paid five per cent more for car insurance, clothing rose 1.1 per cent, and prices for recreation, education and reading went up by 2.4 per cent.

Shelter costs, however, were only 1.8 per cent higher in May, compared to the 2.3 per cent increase in April.

Regionally, the inflation rate rose in eight of the 10 provinces, with Nova Scotia recording the greatest annual increase at 4.6 per cent. All 10 provinces have inflation above three per cent.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

The QEII was closed Sunday morning due to a pole fire. (Photo courtesy City of Red Deer)
UPDATE: QEII near Red Deer reopens

The QEII has been reopened after being closed due to a pole… Continue reading

Innisfail RCMP are investigating a single-vehicle crash that happened west of Bowden on March 21, 2021. (File photo by Advocate staff)
Bashaw RCMP investigate fatal collision in central Alberta

Bashaw RCMP are investigating after a fatal collision Saturday afternoon. Police were… Continue reading

A damaged unicorn statue is shown in a field outside of Delia, Alta. in this undated handout photo. It's not often police can report that a unicorn has been found, but it was the truth Saturday when RCMP said a stolen, stainless-steel statue of the mythical beast had been located in a field not far from where he'd been taken. THE CANADIAN PRESS/HO, RCMP *MANDATORY CREDIT*
Mounties get their unicorn; stolen statue of mythical beast found in Alberta field

DELIA, Alta. — It’s not often police can report that a unicorn… Continue reading

Red Deer Rebels forward Ethan Rowland battles with Medicine Hat Tigers forward Brett Kemp during WHL action at the Centrium Saturday night. (Photo by ROB WALLATOR/Red Deer Rebels)
Tigers claw back, hand Rebels 11th straight loss

Tigers 5 Rebels 2 The same old issues continue to plague the… Continue reading

There were six additional deaths across Alberta reported over the past 24 hours, bringing the death toll to 1,926 since the beginning of the pandemic. (File photo)
Red Deer Public Schools will not pilot the new draft curriculum at its elementary schools. (File photo contributed by Red Deer Public Schools)
UPDATED: Red Deer Public Schools says no to piloting new curriculum

Alberta Teachers’ Association support school boards

People are shown at a COVID-19 vaccination site in Montreal, Sunday, April 18, 2021, as the COVID-19 pandemic continues in Canada and around the world. THE CANADIAN PRESS/Graham Hughes
Federal government to send health-care workers to Ontario, Trudeau says

MONTREAL — Prime Minister Justin Trudeau says federal departments and some Canadian… Continue reading

People cross a busy street in the shopping district of Flushing on Tuesday, March 30, 2021, in the Queens borough of New York. Access to the COVID-19 vaccine in the United States is growing by the day. THE CANADIAN PRESS/AP-Kathy Willens
Despite COVID-19 vaccines, Americans in D.C. not feeling celebratory — or charitable

WASHINGTON — This might make Canadians jealous of their American cousins for… Continue reading

Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, speaks during a press briefing at the White House, Tuesday, April 13, 2021, in Washington. (AP Photo/Patrick Semansky)
Half of U.S. adults have received at least one COVID-19 shot

WASHINGTON — Half of all adults in the U.S. have received at… Continue reading

A man pays his respects at a roadside memorial in Portapique, N.S. on Thursday, April 23, 2021. RCMP say at least 22 people are dead after a man who at one point wore a police uniform and drove a mock-up cruiser, went on a murder rampage in Portapique and several other Nova Scotia communities. THE CANADIAN PRESS/Andrew Vaughan
Memorial service in Nova Scotia marks one year since mass shooting started

TRURO, N.S. — A memorial service is planned for today in central… Continue reading

In this April 23, 2016, photo, David Goethel sorts cod and haddock while fishing off the coast of New Hampshire. To Goethel, cod represents his identity, his ticket to middle class life, and his link to one the country's most historic industries, a fisherman who has caught New England's most recognized fish for more than 30 years. (AP Photo/Robert F. Bukaty)
‘It’s more than just a fish:’ Scientists worry cod will never come back in N.L.

ST. JOHN’S, N.L. — The latest assessment of Atlantic cod stocks, whose… Continue reading

FILE - In this Friday Aug. 21, 2020 file photo, Leonid Volkov, a top strategist for Russian opposition leader Alexei Navalny, addresses the media in Berlin, Germany. Activists for imprisoned Russian opposition leader Alexei Navalny are calling for massive protests in the heart of Moscow and St. Petersburg as Navalny's health reportedly is deteriorating severely while on hunger strike. Leonid Volkov, a top strategist for Navalny, said the demonstrations are called on short notice for Wednesday April 21, 2021, because "his life hangs in the balance. ... We don't know how long he can hold on." (AP Photo/Michael Sohn, File)
Navalny’s team calls protests amid reports of failing health

MOSCOW — Associates of imprisoned Russian opposition leader Alexei Navalny called Sunday… Continue reading

Florida Gov. Ron DeSantis gestures during a news conference Sunday, April 4, 2021, at the Manatee County Emergency Management office in Palmetto, Fla. DeSantis has received a single-dose coronavirus vaccine. His office confirmed Wednesday, April 7, 2021 that the Republican governor got the Johnson & Johnson vaccine, which requires only a single dose. (AP Photo/Chris O'Meara, file)
GOP White House hopefuls move forward as Trump considers run

WASHINGTON — Less than three months after former President Donald Trump left… Continue reading

Each spring, the Okanagan Fest-of-Ale is held in Penticton. This year, as a result of the COVID-19 pandemic, the festival will not be held. However, beer is still available. How much do you know about this beverage? (pxfuel.com)
QUIZ: How much do you really know about beer?

Put your knowledge to the test with this short quiz

Most Read