Canada's annual inflation rate unexpectedly accelerated to 2.9% in May, marking a significant uptick from previous months. This surge, reported in the latest data on Tuesday, includes key measures of core inflation that also edged up for the first time in five months. The unexpected rise in inflation poses challenges for the prospects of a July interest rate cut by the Bank of Canada.
The Canadian dollar initially faced losses but rebounded, strengthening by 0.8% to 1.3643 against the U.S. dollar (73.30 U.S. cents) following the release of the inflation figures. Money markets responded swiftly, slashing their expectations for a rate cut in July from 65% to around 54%.
Analysts point out that the sharp increase in inflation is likely to influence the Bank of Canada's monetary policy decisions going forward. The central bank has been closely monitoring economic indicators amid inflationary pressures, which have persisted despite earlier expectations of stabilisation.
The unexpected inflationary uptick underscores ongoing concerns about price pressures and their potential impact on consumer spending and economic growth. As Canada navigates through these inflationary challenges, market participants will keenly watch for further developments and the Bank of Canada's response in managing monetary policy amid evolving economic conditions.
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