Canada May CPI 2.9% versus 2.6% expected

• Prior month 2.7%
• CPI m/m +0.6% vs +0.3% estimate

Core measures

• CPI Bank of Canada core y/y 1.8% vs 1.6% prior
• CPI Bank of Canada core m/m 0.6% versus 0.2% prior
• Core CPI m/m SA +0.3% vs 0.0% prior
• Trim 2.9% versus 2.8% prior
• Median 2.8% versus 2.6% prior
• Common 2.4% versus 2.6% prior

Bank of Canada July implied rate cut odds immediately fell to 52% from 71% on the CPI data. Acceleration in the headline CPI was largely due to higher prices for services, which rose 4.6% in May following a 4.2% increase in April. That tends to be stickier inflation and will certainly worry the BOC, though just yesterday Macklem was downplaying wage increases.

Within services, cell phone service, travel tours (+10.4% m/m), rent (+8.9% y/y) and air transport (+2.3%) were drivers. Cell phone plans have been dropping but a -7.8% m/m comp from May 2023 fell out of the index and that bumped up the y/y reading to -19.4% from -26.6%.

Prices for goods were up 1.0% y/y, the same as in April but grocery prices rose on a y/y basis for the first time since June 2023.

USD/CAD initially fell on the report but quickly recouped most of the losses. The natural reaction is for a currency to rise on a number like this but I wonder if the market is sensing economic pain in Canada and treating inflation as yesterday’s story because of the recessionary clouds on the horizon.

This article was written by Adam Button at www.forexlive.com.