Home Buying

Inflation Rose to 2.9% in May, Diminishing the Dream of Another Rate Cut for July

Inflation Rose to 2.9% in May, Diminishing the Dream of Another Rate Cut for July

Table of contents

    As the fight against inflation continues, Canada’s inflation rate in May 2024 rose to 2.9%, up from the 2.7% gain in April.


    Key Takeaways

    • Canada’s inflation rate rose to 2.9% in May 2024. 
    • The most significant contributors to acceleration were cellular services, travel tours, rent, and air transportation. 
    • After the CPI reading, the probability of another rate cut occurring at the July 24th Bank of Canada announcement decreased. 

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    Inflation Rises

    The most recent inflation rate of 2.9% was up from 2.7% in April. Services played the most significant role in accelerating headline inflation. Price growth for cellular services, travel tours, rent, and air transportation led to the acceleration in inflation this month. 

    The latest data from Statistics Canada shows that the measures of core inflation, which the Bank of Canada closely monitors, have risen to 2.9% for CPI-trim and 2.8% for CPI-median.

    These figures move us further from the central bank’s inflation target of 2%. Shelter continues to be the largest driver of inflation, up 6.4% in May, marking no change in this component since April.

    Shelter Continues to Climb

    Canadians continue to feel the impact of rising prices, as shelter prices increased 6.4% year-over-year and remained the same this month as in April. Year-over-year rent prices in Ontario rose 8.4% in May, up from 6.1% in April. This has contributed to the faster growth in the national rent index, which increased to 8.9% in May. Higher interest rates and population growth have continued to put upward pressure on the Canadian rent index. 

    Higher interest rates continue to make homebuying more expensive, forcing many to stay in the rental market and creating further competition that impacts rental prices. Shelter costs continue to be the most significant driver of inflation out of the 8 CPI components.

    Is a July Rate Cut a Possibility?

    At the June 5th announcement, the Bank of Canada finally decided to lower the policy rate from 5% to 4.75%. The Bank of Canada cited continued evidence of easing inflation, allowing the Governing Council to conclude that monetary policy no longer needed to be restrictive. 

     At this point, a rate cut in July may no longer be on the table. The Bank of Canada (BoC) has increased confidence that inflation is moving in the right direction, but June’s data could change their outlook, leading to a pause in cuts. 

    CPI data for June will be released on July 16th, just a week before the next rate announcement. If inflation continues to increase or stagnate in June, this could sway decision-making to maintain the policy rate at 4.75% until inflation once again moves downward.

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      How Does Canada Compare?

      When looking at global inflation rates, Canada’s 2.9% rate for May 2024 is moving in the opposite direction than what most of the world is currently experiencing. Many countries are seeing inflation slowly come down or stagnate. US inflation rose year-over-year to 3.3% in May, down from 3.4% in April. 

      Frequently Asked Questions

      Welcome to our Frequently-Asked Questions (FAQ) section, where we answer the most popular questions designed and crafted by our in-house mortgage experts to help you make informed mortgage financing decisions.

      What is the inflation rate?

      The inflation rate is a measure of the rate at which the general level of prices for goods and services is rising and, subsequently, purchasing power is falling. Central banks attempt to limit inflation to keep the economy running smoothly.

      Why is the inflation rate important?

      The inflation rate is an important economic indicator because it affects the value of money and indicates the health of an economy. A moderate rate of inflation is generally considered normal in a growing economy. However, high inflation can erode purchasing power and create economic uncertainty.

      How is the inflation rate calculated?

      The inflation rate is calculated by comparing the current Consumer Price Index (CPI) to the CPI in a previous period. The CPI measures the average change in prices over time that consumers pay for a basket of goods and services.

      Final Thoughts

      The May 2024 inflation rate of 2.9% in Canada may mean the economy has hit a roadblock in bringing inflation down. The BoC may decide to pause rates at the July 24th announcement. However, they will continue to monitor the situation closely and make adjustments in the future, if necessary, in an effort to keep inflation within the target.

      Whether you’re a homeowner with a mortgage, a renter, a business owner, or simply a consumer, it’s important to keep an eye on the inflation rate and understand what it means for you. As we move into the spring lending season, it will be interesting to see how the Bank of Canada responds to these latest inflation figures and what that might mean for the Canadian economy.

      If you’re a homeowner or homebuyer, shopping around for the best mortgage that fits your goals can be challenging. Contact nesto’s mortgage experts and learn how you can turn this challenge into an opportunity to save on your mortgage or renewal.


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