Canada May CPI - Upside suprise corrects April's downside surprise
May Canadian CPI with a rise to 3.2% yr/yr from 2.8% is stronger than expected, offsetting a clear downside surprise in April, though the Bank of Canada’s core rates are mostly stable and close to the BoC’s 2.0% target, so we do not believe these numbers will cause significant alarm at the BoC, particularly given hopes that energy prices have now peaked.
CPI-Median remains at 2.1% yr/yr and CPI-Trim remains at 2.0% yr/yr, both following slowings of 0.2% seen in April. CPI-Common did pick up to 2.7% from 2.4% and is the highest since January but the BoC gives less attention to CPI-Common than to its two other core rates.
Before seasonal adjustment the CPI looks quite strong on the month, up by 1.0% overall and 0.7% ex food and energy, but seasonally adjusted the respective gains were more moderate at 0.5% and 0.3%. The ex food and energy seasonally adjusted gain is the strongest since December but coming after four straight very soft outcomes we need more similar monthly data before any significant concern is seen. On a yr/yr basis ex food and energy CPI is still even softer than the BoC’s core rates, if up to 1.6% from 1.5% in April.
The seasonally adjusted detail shows most components of CPI very soft on the month, with the stark exceptions of transport at 1.2% and recreation, education and reading at 1.3%. Strength was seen obviously in gasoline and also air fares, which looks like a pass through of energy costs. Also firm were travel tours and traveler accommodation, which may have been lifted by the World Cup, and telephone services, which corrected from recent weakness. The upside CPI surprise is not broadly based.
