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Inflation dipped, perhaps a short term hold on higher rates?

General Angela Calla 23 Jun News Staff

Canada’s annual inflation rate dropped to 1.4 per cent in May from 1.8 per cent in April, mainly due to a moderation in gas prices and the falling price of clothing.

The latest Statistics Canada inflation report released Tuesday also shows core inflation fell to 1.8 per cent from 1.9 per cent the previous month — well below the Bank of Canada’s two per cent target.

Core inflation, which excludes volatile markets such as energy, is considered the bank’s key yardstick in determining whether inflation is at acceptable levels.

The bank raised the policy rate for the first time in two years on June 1, and some economists suspect it will continue along that path next month at the meeting of governors.

But the May inflation numbers contain little that would worry bank governors or indicate runaway prices.

Overall, Canadians paid 0.3 per cent more for goods in May compared month-to-month with April.

Meanwhile, gasoline prices appear to exercise less of an influence on inflation after largely governing the rate over the past two years.

The report shows pump prices 6.2 per cent higher than a year ago – a much milder increase than the 16.3 per cent rise noted the month before. In fact, gasoline actually cost 0.5 per cent less in May when measured month-to-month with April.

Six of the key indicators monitored by Statistics Canada registered price increases.

Food prices, one of the most significant elements in the index, inched up 0.8 per cent, the smallest increase since March 2008.

Transportation costs, which are tied to gasoline prices, rose 4.1 per cent. At the same time, shelter costs rose 1.3 per cent, as a 5.4 per cent drop in mortgage interest costs counterbalanced a 4.4 per cent jump in the cost of homes.

Prices for clothing and footwear declined 1.3 per cent from last year.

All provinces experienced a rise in inflation in May, but one that proved less dramatic than in the previous month, according to the report. Ontario had the highest rate at 1.9 per cent, while Manitoba showed the lowest at 0.5 per cent.

With files from The Canadian Press