Inflation falls further after retailers drop prices upon store reopenings
Inflation moved further into negative territory as Canada’s retail stores began to reopen from the COVID-19 lockdowns with discounts to entice shoppers.
The consumer price index dropped 0.4 per cent from the same month a year earlier, Statistics Canada reported Wednesday from Ottawa.
That compares with a 0.2-percent drop in April.
Inflation was running at 2.2 per cent as recently as February.
From April, prices climbed 0.3 per cent, compared with a forecast of 0.7 per cent.
Provinces across the country began reopening in May and the latest inflation data suggest retailers lowered prices to encourage sales. Prices for women’s clothing fell 3.9 per cent in May from April and footwear prices dropped 2.9 per cent.
“We expect an ongoing shortfall in demand will make for a slow return to the Boc’s 2 per cent inflation target,” Josh Nye, senior economist at RBC Economics, said in a report to investors. “The upshot is that ongoing monetary policy stimulus will be required to get the economy back to full capacity and inflation back on target.”
Lower prices for furniture, rent and telephone services were also primary contributors to the weaker May reading.
Gasoline prices, a main factor in the lower inflation readings in March and April, picked up in May with higher international demand.
Still, compared with a year ago they remain depressed, driving the annual CPI rate lower.
Economists expected annual inflation would be zero per cent in May, according to the median forecast in a Bloomberg survey.
Core inflation readings, often seen as a better measure of underlying price pressure, declined to 1.67 per cent in May, the lowest since December 2017, down from 1.8 per cent in the prior month.
Compared with last year, consumers paid more for meat following supply chain disruptions, plant closures and a weaker Canadian dollar.
Canned tuna, flour and rice prices also rose, coinciding with higher demand for non-perishables amid the pandemic, Statistics Canada said.
The agency said it will begin publishing new inflation data that better capture changes in consumer behaviour during the coronavirus crisis.
Statistics Canada is working with the Bank of Canada in “exploring ways to use current, ad hoc sources of expenditure data to estimate CPI basket weights that reflect shifting consumption patterns during the pandemic.”