Canadian headline inflation accelerates in May, Bank of Canada likely to remain on sidelines

Canadian headline inflation surprisingly accelerated in May. The CPI inflation rose to 2.4 percent year-on-year from April’s 2 percent. Sequentially, seasonally adjusted prices rose 0.3 percent, the same gain as in April. Gains were widespread with all sub-categories rising on the month. For once energy was not central to the story, said TD Economics in a research report. Energy prices dropped 0.1 percent year-on-year, and stripping energy, inflation was up an even stronger 2.7 percent.

Meanwhile, food was a significant part of the story. Food price inflation accelerated to 3.5 percent in May, driven by meat and fresh vegetables. Transportation was another big source of price growth in May, rising 3.1 percent from 2.5 percent in April, with prices for passenger vehicles leading the way, rising 4.2 percent.

Two of three core inflation measures moved higher in the month. CPI-median moved to 2.1 percent and CPI-trim rose to 2.3 percent – its highest level in over a decade. The CPI-common measure stayed the same at 1.8 percent. On average, the three core measures are at 2.1 percent.

“The acceleration in the core readings support the notion that the Bank of Canada is likely to remain on the sidelines even as the U.S. Federal Reserve takes a more dovish stance. The Canadian economy continues to recover from its soft patch at the start of this year, with increasing signs of improving domestic demand that should push growth above its potential rate over the remainder of this year”, added TD Economics.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral at 12.9459 while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -108.038 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex