Morning Market Brief: Wednesday, June 28, 2023

Canada’s inflation rate slows?

Statistics Canada released Canada’s CPI data for May, revealing Canada’s inflation rate dropped to 3.4% year-over-year. Inflation in Canada continues to move downward but remains at elevated levels and above the Bank of Canada’s (BoC) 2% target. The BoC has aggressively raised rates over the past year to help curb inflationary pressures. ?

• Canada’s annual inflation rate was 3.4% in May, which matched expectations based on a survey of economists by Bloomberg. May’s reading was Canada’s lowest rate of annual inflation since June 2021. The core inflation rate, which excludes more volatile items such as energy and food prices, also slowed in May.
• Driving May’s slowdown was an 18.3% year-over-year decline in gasoline prices. The sharp drop was partly due to a high base year last May when the conflict in Ukraine helped push up oil prices. The price growth for clothing slowed in May. On the other hand, mortgage costs were markedly higher for a second straight month, mainly in response to rising interest rates.
• Canada’s inflation rate has fallen significantly over the past year. The rate of inflation reached a post-pandemic high of 8.1% in June 2022, but the efforts of the BoC to raise interest rates at a rapid pace have contributed to the slowdown in price growth.
• Attention now turns to Canada’s central bank. Canada’s next rate decision is on July 12. With prices still above its target, the economy growing at a relatively strong pace and a robust labour market, the BoC may raise rates again. But May’s inflation reading may relieve pressure on the BoC to raise interest rates.

Despite the decline, inflation remains elevated and impacts many Canadian households and businesses. This reading has created some uncertainty about the BoC’s next move. Economic conditions and expectations change quickly, which could impact your portfolio. Preparation is key. Ensure your portfolio has exposure to different asset classes and countries that can help it perform through potentially challenging environments.

At?CIBC Private Wealth, we aim to take a comprehensive approach to managing, building and protecting your wealth. If you'd like to discuss this market and economic update in more detail, please get in touch with your advisor any time.