Canada’s annual inflation rate edged up to 2.9 per cent in May — an increase from 2.7 per cent in April — mostly due to higher prices for services, Statistics Canada said on Tuesday.
Some of the increase was typical of the season. Prices for cellular services, rent, travel tours and air transportation grew at a faster pace, according to the data agency.
Prices for cell services fell 19.4 per cent in May from a year prior, coming in at a slower pace from April’s 26.6 per cent drop.
Meanwhile, travel tour prices were up 6.9 per cent and air transportation prices up 4.5 per cent from the same time a year prior, both inflated by travel to and from the U.S.
Last year was “a gold rush” for most travel operators because of pent-up demand from the pandemic, said McKenzie McMillan, a Vancouver-based travel consultant with Travel Group Ltd.
“We’re not quite seeing the same amount of demand [this year] as we saw previously,” he said.
More airlines now charge for services that used to be part of the ticket price, such as seat selection and customer assistance. The federal government has vowed to make these fees easier to spot, but greater transparency won’t end airline fees.
‘Not what the Bank of Canada wanted to see’
The Bank of Canada’s preferred measure of core inflation, which strips out volatile sectors like food and energy, was also up in May — more than economists expected.
“I think what was most surprising about the numbers released today was that we saw an inching up across a lot of categories here that Statistics Canada tracks on inflation. So that’s not really great news,” said Pedro Antunes, chief economist at the Conference Board of Canada.
He maintained that the Bank of Canada made the right move in cutting its key interest rate earlier this month.
The central bank cut lending rates from five per cent to 4.75 per cent on June 5, as it attempts to bring inflation down without tipping the economy into a recession. Yet even with a cut, the high rates are still taking away from the economy, Antunes said.
“Let’s not kid ourselves, that’s still a lot of pressure on households.”
BMO economist Douglas Porter wrote of the May inflation numbers that “this is not what the Bank of Canada wanted to see at this point, and clearly shaves the odds of a followup July rate cut.”
Still, Porter noted that a cut next month isn’t out of the question. June inflation data is set to be released on July 16, just over a week before the Bank of Canada’s July 24 interest rate announcement.
“With inflation back on a bumpy path, the outlook for [Bank of Canada] moves is similarly bumpy,” he wrote.
Rent prices rise significantly from previous month
Rental prices rose 0.9 per cent in May from the previous month. That brought the yearly pace of rent increases up to 8.9 per cent, with rent being the second-largest annual contributor to inflation.
Mortgage interest costs slowed very slightly to 0.8 per cent in May from April, and brought the annual pace of increases to 23.3 per cent.
“When we look at the aggregate numbers from Statistics Canada around consumer spending, around household savings, everything looks fairly good on the household side,” said Antunes.
The issue is that there’s a significant dichotomy playing out between lower- and higher-income households, he said.
While mortgage holders are being squeezed by high interest rates, households that don’t have mortgages might be benefiting from those rates because of favourable investment conditions, he noted.
High rents are also hitting certain demographics particularly hard, he said. “I think a lot of the pain that we’re seeing from higher rent prices is affecting lower income and new arrivals, these non-permanent residents.”
Pricier groceries led by fresh fruit, veggies and meat
Grocery prices also increased slightly to 1.5 per cent year over year after a 1.4 per cent increase in April, marking the first acceleration since June 2023.
On a monthly basis, grocery prices rose 1.1 per cent. Though typical of the season, it also marked the largest increase since January 2023, StatsCan said.
Higher prices for fresh vegetables, meat (particularly fresh or frozen beef), fresh fruit and non-alcoholic beverages drove May food inflation up on a monthly basis.