Speaking to reporters on Tuesday, Bank of Canada (BoC) Governor Tiff Macklem said he does not see any signs of generalized inflation. Rather, the current run-up in Canada’s inflation rate has been mostly due to higher oil prices stemming from the conflict in the Middle East. Canada’s annual inflation rate climbed above 3% in May. Since the start of the conflict in the Mideast, Canada’s inflation rate has surged higher, leading to projections the BoC may need to hike interest rates this year. However, Macklem believes inflationary pressures have largely been contained to goods and services directly tied to the global oil shock.

• Macklem noted that the rise in inflation is mostly tied to rising energy prices. For instance, he noted air transportation costs are up, but that has come in large part due to higher jet fuel costs. He said there is “no evidence of generalized inflation.”
• The BoC Governor had earlier said the BoC will act if they see signs inflation is spreading to other consumer products and services.
• According to Macklem, the number of consumer goods and services rising above 3% annually remains close to the historical average.
• Food inflation is a concern for the BoC. The growth in food prices accelerated to 3.8% in May, putting strain on many Canadian households. Macklem said the BoC is closely monitoring food prices and what is continuing to cause the jump.

The BoC believes the spread of inflation has been relatively contained to energy prices. This is evident in the core inflation rate, which has remained close to the BoC’s 2% target. Still, higher energy prices have cut into Canadians’ discretionary spending in recent months. The interim peace deal between the US and Iran has brought down oil prices, but higher inflationary pressures might persist for longer, which the BoC will need to carefully monitor.

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