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Consumer Price Index (CPI) is up 3.6 per cent in May on an annual basis, according to Statistics Canada. The data agency has highlighted the impact of base-year on CPI.
The pandemic struck last year and led to a grinding halt in economic activity. Gasoline prices, for example, were falling in March and April 2020. The data reveal that CPI, sans volatile gasoline prices, is up 2.5 per cent in May. Gasoline prices are up 43.4 per cent in May on an annual basis, less than April when they were up 62.5 per cent.
Furniture, house ownership costs see steep surge
The concern is the homeowners' replacement cost index, which is up 11.3 per cent on a year-over-year basis. The hike is the steepest since 1987. Over the past 16 months, the index has seen a rise in the wake of demand for new houses and a rise in construction costs. Another major highlight was a five per cent rise in passenger vehicles' prices due to the worldwide scarcity of chips.
A 9.8 per cent surge in furniture prices and 10.3 per cent in upholstered furniture also shaped the May CPI figure. In the former category, the hike was the steepest since 1982. A comparatively slower hike of 1.1 per cent was observed in meat products prices.
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Bank of Canada keeps policy rates at 0.25 per cent
Higher-than-expected CPI has yet to translate into hikes in benchmark rate by the Bank of Canada. On June 9, the bank announced it would stick with a record-low 0.25 per cent rate. Besides, the bond-buying program will stay at the pace of C$3 billion a week. The central bank is infusing liquidity in the market to build onto the momentum of robust first-quarter growth of 5.6 per cent. The economy is yet to overcome the pandemic fallout. The unemployment rate is 8.2 per cent, and 68,000 jobs were lost in May, including 36,000 jobs lost in the manufacturing sector.
In his recent address to the Canadian Senate, Bank of Canada's Governor Tiff Macklem termed inflation 'transitory'. He believes that price rise owes to base-year effect, and it should not shape the bank's monetary policy decision. The May CPI rise was the steepest since 2011, but the bank's accommodative stance is here to stay.
The Fed has lately signaled that the benchmark rate in the US can be hiked in 2023. The US central bank says that inflationary pressures are transitory.
