Canada’s annual inflation rate climbed to a 29-month high in May, reaching 3.2 percent, as rising oil prices, fueled by tensions between the United States and Iran, impacted gasoline costs.
The release of this data by Statistics Canada on Monday marked the first time in nearly two and a half years that Canada’s overall inflation rate has surpassed the Bank of Canada’s target range of one to three percent.
“It is always unpleasant to see the overall inflation rate exceed three percent, even if it is only for one month,” Doug Porter, chief economist at BMO Capital Markets, told Reuters. The monthly inflation rate surged by one percent in May, marking the highest increase in 15 months.
Rising energy and consumer goods prices
Gasoline prices soared by 33.2 percent year-over-year in May, the highest figure since Russia’s invasion of Ukraine, according to Statistics Canada. This overall price increase also affected transportation costs, which rose by 9 percent compared to the previous month.
Overall consumer prices increased by 2.2 percent year-over-year, driven by rising prices for food, recreation, and alcoholic beverages. Food prices rose by 3.8 percent in May, propelled by a 5.3 percent increase in fresh fruit prices and a 9 percent jump in vegetable prices.
Meanwhile, the inflation figure is unlikely to alter the Bank of Canada’s assessment of core inflation, as it noted earlier this month that it sees limited evidence that higher energy prices are contributing to broad-based inflation.
Housing costs rose by 1.7 percent in May, following a 1.8 percent increase in April, according to the data. This was attributed to a decrease in mortgage costs, which fell by 0.2 percent last month.
Political challenges and prospects
The rising inflation poses a political challenge for Prime Minister Mark Carney, who has vowed to tackle affordability issues after his party secured a parliamentary majority in April.
However, gasoline prices have already shown a significant reversal in June following a temporary peace agreement between the United States and Iran last week aimed at ending the conflict involving the United States and Israel against Iran. Analysts suggest this could help reduce the overall inflation figure in June.
“The agreement between the United States and Iran to restore operations at the Strait of Hormuz has led to a sharp drop in oil prices in June, so May is likely to be a short-term peak for the overall inflation rate,” Michael Davenport, senior economist for Canada at Oxford Economics, said in a note to Al Jazeera. He referred to the critical Middle Eastern waterway through which 20 percent of the world’s oil supplies are transported. “There remains a lot of uncertainty about the durability of the ceasefire, and the risk of renewed oil price increases remains elevated.”
Source: Al Jazeera