Core readings of inflation a little softer than Street consensus
Andrew Grantham, executive director, Economics, CIBC Capital Markets
The Bank will still be pleased to see that the CPI rose by just 0.1% m/m this May and that the monthly gains in CPI-trim and CPI-median each slowed to 0.2%. The 1.1% m/m seasonally adjusted fall in transportation prices cannot be explained by the small fall in gasoline prices alone, with the press release suggesting that vehicle prices also declined amid improving supply.
Excluding food and energy, the deceleration in year-over-year inflation looked more modest. The 12-month rate of change in that core index fell from 4.4% to 4.0%. While that’s the slowest pace since February 2022, further progress could be hard to come by. In seasonally-adjusted terms, the ex-food and energy index rose 0.2% in May alone, leaving the three-month annualized rate tracking 3.6%, well within the range it’s been in since last year. ...
With measures of recent price growth continuing to run above 3 ½%, it looks almost like a done deal that the Bank of Canada will raise rates another 25bps in July. The sticky inflation data builds a strong case for further monetary tightening, which was bolstered by a series of hot flash estimates on retailing, wholesaling and factory activity. That said, the market was already well positioned for another rate hike in July, so there’s been little reaction in yields.