Bank of Canada Governor Tiff Macklem stated that there is still little evidence that energy inflation is spreading to other sectors, even though headline inflation accelerated to its highest level in over two years in May. Speaking to reporters after a speech in Paris on Tuesday, Macklem noted that May's Consumer Price Index (CPI) data aligned with the central bank's forecasts from the April Monetary Policy Report.
May CPI Data and Energy-Driven Inflation
According to Statistics Canada data released Monday, rising gasoline and food prices pushed the inflation rate to 3.2 per cent in May, the highest since December 2023. Gasoline prices surged 33.2 per cent year-over-year, the largest annualized monthly increase since July 2022. Macklem attributed most price increases to the global oil price shock, with higher jet fuel costs also lifting air fares and travel tours.
“Overall we are not seeing, so far anyways, much spreading of higher oil prices to other prices of other goods and services. If you look at our measures for core inflation, both trim and median, they didn’t move,” Macklem said at the press conference.
Core Inflation and Historical Comparisons
Macklem emphasized that the Bank of Canada tracks the proportion of CPI components rising faster than 3 per cent, which is currently close to historical averages. “What that’s saying is that, so far, there’s no evidence of generalized inflation,” he added. His comments follow earlier remarks that the bank is willing to look through rising inflation tied to higher gas prices, but monetary policy must remain nimble to prevent spillover.
The recent agreement to reopen the Strait of Hormuz and extend a ceasefire between the United States and Iran is significantly driving down global oil prices, which Macklem noted will reduce risks of high and persistent inflation. The Bank of Canada is currently working on updated projections to be published in mid-July, factoring in these developments.
Persistent Food Inflation Concerns
Despite stable core inflation, food inflation remains a concern. Grocery prices rose 4.3 per cent year-over-year in May, driven by higher fresh fruit and vegetable costs. Food inflation has outpaced headline inflation for 16 consecutive months, and central bank data show grocery prices have risen 22 per cent since 2022. Macklem said staff are investigating whether the spike stems from higher transportation costs or climate-related effects.
“The reality is, food is not something you can scale back very easily, especially for lower-income people. They have been disproportionately affected by elevated food price inflation. We had been starting to see some reduction in food inflation, but it is slightly up again in the latest CPI report,” Macklem noted. “There is no question that we are very aware that higher food prices is impacting many Canadians.”
The Bank of Canada's next policy decision is scheduled for July, with markets watching for any shift in rate guidance as inflation dynamics evolve.
