The Consumer Price Index, the figure used to measure inflation in Canada, was up 2.3 percent in the month of May. This increase marks the first time in over 24 months that inflation has reached over the 2 percent barrier. The increase in inflation also led to an increase in the value of the Canadian dollar.
An inflation rate around the 2 percent mark was not unexpected, however; a large jump in energy prices were accountable for the higher than expected inflation rate. Overall, energy prices have increased 8.4 percent since May 2013. In particular, prices for electricity and meat were singled out as the driving forces behind the inflationary period.
The core inflation rate, which removes energy and food prices due to their capacity for volatile price movements, was also pushed higher to 1.7% from 1.4% in April 2014. Statistics Canada reported that prices had increased in each Canadian province and that each of the twelve categories that compose the Consumer Price Index were also higher in price.
Although energy prices were pushed higher in every province, the inflation rate was highest in Ontario at 2.8 percent, while the province with the lowest inflation mark was British Columbia at 1.5%
Typically, higher inflation rates result in higher interest rates as the Bank of Canada must carefully weigh the advantages and dis-advantages of a more valuable dollar. The Bank of Canada will make its next interest rate announcement on July 16th, 2014. It remains to be seen whether the Bank of Canada will make any changes to the Overnight Lending rate then.
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Statistics provided by Statistics Canada