Canada’s May headline inflation slows on food prices

Canada’s inflation in the month of May slowed a bit to 1.5 percent year-on-year as compared with April’s 1.7 percent year-on-year. Meanwhile, the core inflation, excluding the eight most volatile items, slowed slightly to 2.1 percent year-on-year.

Canada’s headline inflation for May came in slightly below expectations, mainly due to subdued food price inflation. However, core inflation slowed as expected. A weaker economy in the last 18 months has exerted downward pressure on inflation. Services prices rose a benign 1.9 percent in Canada.

The Bank of Canada is not worried regarding inflation as core inflation continues to rebound along the mid-point of the 1 percent -- 3 percent target range, noted TD Economics in a research report. The Canadian economy continues to adjust to the collapse in oil price, while the current stimulative stance of monetary policy remains warranted, added TD Economics.

Slowdown in inflation in May was mainly due to deceleration of food price inflation. Food prices slowed from April’s 3.2 percent to 1.8 percent in May. Furthermore, weaker inflation in reading, recreation and education also led to subdued headline inflation.

Gasoline prices increased in May; however, they remained 7.1 percent below the level recorded one year ago and continue to put downward pressure on headline inflation. Stripping gasoline, inflation would have come in at 1.9 percent in May. Clothing and footwear inflation rose 1.1 percent year-on-year in May. Clothing and footwear were in deflationary territory in earlier months.