Inflation Slows in May, But Is It Enough?

Statistics Canada released the May inflation figures today. The headline Consumer Price Index (CPI) rose by 3.4% in May (vs. May 2022), down from April's 4.4%. However, excluding gasoline, the May increase was 4.4% following April's 4.9%. This is a long way from the Bank of Canada (BoC) target of 2.0%, although the headline rate is nearing the top end of their control range (1.0% to 3.0%). The BoC remains committed to lowering inflation to the target by the end of the year, and its primary way of doing that is through the bank rate. The key question is whether inflation has slowed enough to prevent another 25 basis point increase in the bank rate in July. We believe it's possible the Bank will pause in July but that another increase this summer - whether it's in July or August - is inevitable because we expect inflation will be persistently above target, and economic conditions will be overheated, during the period.