Inflation in Canada reached in May levels not seen since 1983. Analysts at CIBC point out that CPI numbers makes a 75 basis points interest rate hike at the next meeting a near certainty and suggest that the peak in rates could be higher than 2.75%.

Key Quotes: 

“There was no rest for those of us growing weary of escalating inflationary pressures in May. Headline CPI rose by 1.4% month-over-month, taking the annual rate up from an already elevated 6.8% to an even more gravity-defying 7.7% (consensus +1.0%m/m, 7.3% y/y). While food and energy drove much of the headline increase during the month, price pressures in rebounding services meant that, even excluding food and energy, inflation was very strong. The continuation of sharp and broadly based price pressures makes a 75bp hike from the Bank of Canada a near certainty, and likely means that the peak in interest rates will be higher than we previously anticipated.”

“With little respite from high gasoline prices on average in June, and with food prices likely to continue to increase, headline inflation should easily surpass 8% next month. However, with commodity prices starting to trend lower amid concerns of a global slowdown, inflation should finally moderate in late summer and into the fall. Headline CPI was already running well above the Bank of Canada's April projections prior to today, and so this release makes a 75bp move at the next meeting a near certainty and suggests that the peak in interest rates could be higher than the 2.75% we had previously predicted.”