Canada's annual inflation rate rose to 7.7% in May 2022. This is the highest level since January 1993 and is above the market’s expectations. Most of the upward pressure came from transportation, food and shelter. Transportation costs surged 14.6%, mostly because a 48% percent rising gasoline prices.

 

Source: Canada Inflation Rate, TRADING ECONOMICS, June 2022

 

Canadian job vacancy rates hit the highest level on record in the Q1 2022. There were over 1 million unfilled jobs in Canada in Q1 2022. This shortage of labour has also caused inflationary wage pressures as seen by the average hourly wage increase in the chart below:

 

Luckily there are signs that inflation may be peaking. Housing prices are declining as well as new home mortgage applications. Technology companies have stopped hiring and many are laying people off. We've seen a pullback energy prices which will hopefully lower the costs of goods in future months.

 

You may ask: “Why is this important?” It's important because the Federal Reserve needs to continue to raise interest rates until it's convinced that inflation is coming down. Once the market has some clarity that there will be an end to the interest rate hikes it will likely continue with its long-term secular bull market. It's also likely that at that time we will see a rotation back into growth stocks and out of cyclicals.

 

I've also included a piece from our CIBC Economics team entitled "The week ahead”.

 

As always if you have any questions, please feel free to give us a call at any time.

 

Have a great weekend.

 

Milan