Key facts
- Canada's services economy expanded in May, with the PMI rising to 50.6.
- This is the highest level for the services PMI since November 2024.
- Operating costs increased at the fastest pace in four years, driven by fuel and wage expenses.
Canada's services economy expanded in May, with the PMI reaching 50.6, the highest since November 2024. Operating costs accelerated due to higher fuel prices and wage expenses, raising concerns for policymakers. New business saw a marginal fall amid geopolitical uncertainty.
Canada's services economy saw modest expansion in May, with the S&P Global Canada services PMI rising to 50.6 from 49.2 in April, marking the first reading above 50 since October and the highest since November 2024. This growth was tempered by a challenging business environment, including a marginal fall in new business as clients expressed uncertainty due to the ongoing Middle East conflict, which has impacted vital supply routes like the Strait of Hormuz. Operating costs accelerated significantly, with the input prices index climbing to 67.0, its highest level since May 2022, driven by sharply rising fuel and wage expenses. The prices charged index also reached its highest level since July 2023 at 56.7. The Bank of Canada has indicated that it may need to implement consecutive interest rate hikes if high oil prices continue to fuel inflation. The S&P Global Canada Composite PMI increased to 50.8 in May from 49.9 in April, reflecting growth in both the services and manufacturing sectors.
The acceleration in operating costs and persistent inflation pressures in Canada's services sector could lead the Bank of Canada to consider further interest rate hikes, impacting borrowing costs and economic growth.