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Canada’s annual inflation rate accelerated to 3.6% in May, up from a year-over-year increase of 3.4% in April, due to both the base-year effect and rising prices for shelter and vehicles, Statistics Canada said on Wednesday.

COMMENTARY

ROYCE MENDES, SENIOR ECONOMIST, CIBC CAPITAL MARKETS

“The base effects which are pushing up the headline inflation readings at the moment should begin to fade in the June data, and continue to do so for some months thereafter. As a result, the Bank of Canada will continue to look through the recent acceleration in inflation, instead focusing more on the remaining slack in the economy to justify keeping rates on hold until the second half of 2022.”

DOUG PORTER, CHIEF ECONOMIST AT BMO CAPITAL MARKETS

“For the Bank of Canada, much like the Fed, although they haven’t used the same language, they do see this as being largely temporary, and that it will pass. I don’t think there’s anything here yet to change to change their view on that.”

“They’re definitely going to raise an eyebrow over some of those core measures, in particular, the trim, rose all the way to 2.7%… The Bank will be keeping a wary eye on these numbers… Most of this is not going to stick but that doesn’t mean they’ll completely brush it off.

For Canada, the one thing that differentiates us on the high side… is that we’ve got a roaring housing market… Three of the five (biggest drivers of inflation) are related to housing costs… So the housing boom is definitely having an impact on the inflation rate.”

NATHAN JANZEN, SENIOR ECONOMIST, ROYAL BANK OF CANADA

“It looked a little firmer than expected on the headline but also in the underlying details. By our own count about 58% of the price basket is growing at 2% or more on a 3-month rolling average basis as of May. That’s continued to increase as the Bank of Canada core measures also increase.”

“A lot of the headline strength is coming from transitory factors but there are also signs of some firming in underlying price growth pressures.”

DEREK HOLT, VICE PRESIDENT OF CAPITAL MARKETS ECONOMICS AT SCOTIABANK

“The whole base-effect narrative is getting pretty tired. We’re dealing with durable month-over-month increases that could be supply-chain driven in Canada and could be more persistent that what they are judging. But the interesting thing is we’re not getting a reopening effect here like they are maybe in the U.K. and the U.S. There’s something deeper going on in terms of underlying pressures.”

“The amazing thing is if you’re getting relatively hot month-over-month numbers like this in lockdown, just wait until we start to reopen the economy and potentially get even greater price pressures.”