Canada inflation up near 40-year high; calls mount for 75-bps rate hike (updated)
22/06/2022 13:45
(Adds news analyst comments, Bank of Canada comment, updates
CAD)
By Julie Gordon
OTTAWA, June 22 (Reuters) - Canadian consumer prices
increased in May at rates not seen since January 1983, ahead of
analyst forecasts, driven by pricey gasoline, official data
showed on Wednesday, upping pressure on the central bank to
follow the U.S. Federal Reserve with a supersized rate hike.
Canada's annual inflation rate accelerated to 7.7% in May,
galloping past April's 6.8% and analyst forecasts of 7.4%, data
from Statistics Canada showed. Inflation is far above Bank of
Canada's April forecast that it would average 5.8% this quarter.
"It's a bit alarming, particularly the breadth of inflation
we're seeing, I think it really reinforces that Bank of Canada
needs to take drastic actions to bring inflation under control,"
said Andrew Kelvin, chief Canada strategist at TD Securities.
The Bank of Canada raised interest rates to 1.5% from 1.0%
this month, its second consecutive half percentage point
increase, and said it was ready to act "more forcefully" if
needed. It last hiked by more than 50-basis points in 1998, when
it was defending the currency.
"We know inflation is keeping Canadians up at night. It's
keeping us up at night," the Bank of Canada's Senior Deputy
Governor Carolyn Rogers said in Toronto in reaction to the
figures. urn:newsml:reuters.com:*:nT5N2TL012
"We will not rest easy until we get (inflation) back down to
target... That's why we're raising interest rates, and we're
raising them quite aggressively," she added.
The Fed hiked U.S. rates by 75-bps this month, a move
economists said Canada was "extremely likely" to follow on July
13, considering May's data. urn:newsml:reuters.com:*:nL1N2Y12O3
"The Bank will need to deliver at least 75 basis points to
reassert to markets and Canadians that it has the fortitude to
deliver sufficiently substantive monetary tightening to wrestle
inflation down," said Jay Zhao-Murray, market analyst at Monex
Canada.
Canadian prices rose more in May than in April in every
province, led by higher pump prices and bolstered by higher
services costs. Excluding gasoline, the annual rate rose 6.3% up
from 5.8% in April, Statscan said.
"It is fairly clear that the pressures are spreading out and
risking becoming much more entrenched," said Doug Porter, chief
economist at BMO Capital Markets.
Energy prices rose 34.8% on an annual basis, while grocery
price gains matched April's increase at 9.7% and shelter cost
inflation also matched April at 7.4%. Prices for services rose
more in May than in April, led by hotels and restaurants.
CPI common, which the central bank calls the best gauge of
the economy's performance, hit 3.9%, beating forecasts of 3.5%
and matching a July 1991 high. CPI median and trim, at 4.9% and
5.4% respectively, were the highest on record.
The Canadian dollar CAD= was trading 0.3% lower at 1.2956
to the greenback, or 77.18 U.S. cents as oil prices tumbled.
(Reporting by Julie Gordon in Ottawa Additional reporting by
Steve Scherer and Dale Smith in Ottawa and Fergal Smith in
Toronto
Editing by Mark Potter, Angus MacSwan and David Gregorio)
((julie.gordon@thomsonreuters.com; 343-961-4020;))