Today’s reports of modest industrial inflation are helping to assuage recent fears over consumer inflation, clearing the way for future rate cuts by the Bank of Canada.

Canadian industrial prices rose slightly faster than expected in May, up by 0.3%, led by higher prices for lumber, gas and crude oil. Excluding energy, prices were up just 0.2%. The year-over-year increase slipped to 2.7%, and BMO Nesbitt Burns says itÕs “likely to slow going forward. The rise in industrial prices over the past three months was largely due to higher costs for lumber, automobiles, energy and meat, all of which have
recently eased.”

Raw materials prices were also up a little faster than expected, but far below recent numbers.

“Despite the recent hefty increases in consumer prices, industrial prices pose no threat to the inflation environment,” concludes BMO Nesbitt Burns. “Recent evidence suggests that prices are likely to pose even less of a threat in the near future, as energy costs have continued to decline markedly and lumber prices have retreated. Thus, the Bank of Canada can remain focused on the growth outlook and continue to trim rates in a measured fashion when such actions are deemed necessary.”