Canada’s consumer price inflation decelerates in May, likely to rise higher in H2 2017

Canada’s consumer price inflation slowed in May on a year-on-year basis and on sequential basis, coming in below consensus expectations. The headline inflation decelerated 0.2 percent month-on-month in May after gaining 0.4 percent in April. On a year-on-year basis, the consumer price inflation slowed to 1.3 percent in May from April’s 1.6 percent. Consensus expectations were for the prices to come in at 1.5 percent.

A slowdown in energy prices dragged on the headline figure, especially gasoline prices. Energy prices rose 3.3 percent year-on-year, decelerating from 9.6 percent in the earlier month. Meanwhile, food prices rose 0.3 percent sequentially, bringing the year-on-year figure to -0.1 percent, up from -1.1 percent seen in April.

Meanwhile, the Bank of Canada’s core measures were either flat or down, with CPI-median edging down to 1.5 percent from 1.6 percent, CPI-trim to 1.2 percent from 1.3 percent, and CPI-common unchanged at 1.3 percent, noted TD Economics in a research report.

Canada’s inflation pressures continue to be subdued. Even excluding energy prices, core measures indicate little in the way of rising price pressures. In the past, softness has been focused in goods categories, but even services slowed in May.

The weak inflation environment is likely enough for the Bank of Canada to hold off on raising interest rates during its next meeting in July. However, a continuation of above-trend economic growth should lower slack and help turn inflation higher in the second half of this year, permitting the central bank to hike the overnight rate in October, added TD Economics.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral at -30.0203, while the FxWirePro's Hourly Strength Index of US Dollar was bearish at -80.1971. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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