According to Statistics Canada's report on Tuesday, Canada witnessed a deceleration in its inflation rate to 3.4 percent in the year leading up to May. This slowdown can be attributed to notably lower prices of gasoline. In April, the inflation rate stood at 4.4 percent, making the current decrease quite significant.
The primary factor driving this deceleration is the decrease in gasoline prices. If we exclude the impact of gasoline, the inflation rate would remain at 4.4 percent. The average decline of over 18 percent in gasoline prices compared to their peak levels last year has played a major role in dragging down the overall inflation rate on its own.
However, despite the apparent deceleration in consumer prices, various aspects of the cost of living continue to rise significantly.
The rate at which grocery prices are increasing is nearly nine percent, only slightly lower than the 9.1 percent rate observed in April. Moreover, this rate is nearly three times higher than the overall inflation rate.
Food prices have consistently been on the rise at a faster pace than the officially reported inflation rate for over a year now.
Moreover, the expense associated with maintaining a place to live continues to surge at an alarming rate.
The mortgage interest cost index has soared by 29.9 percent, marking the highest pace ever recorded. This escalation is a result of the Bank of Canada's aggressive increase in lending rates, aimed at dampening demand.
Variable rate mortgage holders have been particularly impacted, as the cost of servicing their loans has been skyrocketing throughout the year. Even those with fixed-rate loans are facing the need to renew and secure new loans at substantially higher rates than their previous ones.
The increased cost of mortgages stands as the primary factor influencing the inflation rate, according to the data agency. If mortgage expenses are excluded from the calculations, Canada's headline inflation rate would have been 2.5 percent, down from 3.7 percent in April.
Leslie Preston, an economist at TD Bank, pointed out that even if we exclude volatile factors such as gasoline and mortgages, the underlying inflation remains at a level that would likely lead the Bank of Canada to consider another rate hike in the future.
"While the decrease in goods inflation is positive, it is likely that the Bank of Canada has already taken that into account as supply chain disruptions ease," she explained. "Although Canadian inflation has continued to moderate in May, it is unlikely that the progress made will be sufficient to deter the Bank of Canada from implementing rate increases in July."
