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Inflation rate dropped to 3.4% in May. What that means for the Bank of Canada

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The annual rate of inflation dropped sharply last month, but some economists argue a slowdown might not be enough to deter the Bank of Canada from another rate hike in July.

Statistics Canada said Tuesday that the annual inflation rate for May cooled by a full percentage point to 3.4 per cent. Most economists had the headline inflation rate dropped significantly last month after reaching 4.4 per cent in April — a surprise uptick from 4.3 per cent the previous month and the first time the inflation rate rose in 10 months.

RBC Economics had expected a more modest drop to 3.6 per cent in the May inflation report. Nathan Janzen, assistant chief economist at RBC, tells Global News the “biggest factor” is the difference in energy price trends this year compared to last.

Energy prices were down 12.4 per cent year-over-year in May, according to Statistics Canada. Prices for gasoline and oil spiked in the spring and summer of 2022 following Russia’s invasion of Ukraine.

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