Bank of Canada’s Tiff Macklem says there’s still little evidence that energy inflation is spreading

Bank of Canada Governor Tiff Macklem said staff are still trying to figure out whether the spike in grocery prices is caused by higher transportation costs or climate-related effects. Photo by HYUNGCHEOL PARK/Postmedia

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Bank of Canada Governor Tiff Macklem says he’s not seeing any evidence of generalized inflation even though headline inflation accelerated to its highest level in more than two years in May.

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Speaking to reporters after a speech in Paris on Tuesday, Macklem said May’s Consumer Price Index (CPI) data was in line with the Bank of Canada’s forecasts in the last Monetary Policy Report, which was published in April. Most of the areas where prices increased were tied to the global oil price shock. While air fares and travel tours saw costs rising in May, that was mainly due to the rising costs of jet fuel.

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Gasoline prices were up 33.2 per cent year-over-year in May, the biggest annualized monthly increase since July 2022, according to StatCan.

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Macklem’s comments come several weeks after he told reporters that the Bank of Canada is willing to look through rising inflation tied to higher gas prices. Monetary policy needs to be “nimble” to make sure inflation doesn’t spread to other goods and services in the CPI basket.

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“Overall we are not seeing, so far anyways, much spreading of higher oil prices to other prices of other goods and services. If you look at our measures for core inflation, both trim and median, they didn’t move,” he said at a press conference in Paris on Tuesday.

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“One thing we track is the proportion of CPI components rising faster than 3 per cent. (Right now,) that’s actually pretty close to historical averages. What that’s saying is that, so far, there’s no evidence of generalized inflation.”

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The recent agreement to re-open the Strait of Hormuz and extend a ceasefire that was signed by the United States and Iran is also significantly driving down global oil prices, which will reduce the risks of high and persistent inflation, he added.

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“We’re currently working on our projections, which will be published in mid-July, and we will factor that in along with all the data between now and then,” Macklem said.

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According to StatCan data, grocery prices rose by 4.3 per cent year-over-year in May, driven mainly by higher prices for fresh fruit and vegetables. Food inflation has outpaced headline inflation on an a year-over-year basis for 16 consecutive months, and the central bank’s own data suggest that grocery prices have risen by 22 per cent since 2022.

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Macklem said staff are still trying to figure out whether the spike in grocery prices is caused by higher transportation costs or climate-related effects.

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“The reality is, food is not something you can scale back very easily, especially for lower-income people. They have been disproportionately affected by elevated food price inflation. We had been starting to see some reduction in food inflation, but it is slightly up again in the latest CPI report,” he noted.

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“There is no question that we are very aware that higher food prices is impacting many Canadians.”

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