Consumer price inflation decelerated to1.3% (year-on-year) in May from 1.6% in April. Prices fell 0.2% month-on-month (seasonally adjusted), following a 0.4% gain in April.
A deceleration in energy prices weighed on the headline number, particularly gasoline prices. Energy prices were up 3.3% year-on-year, slowing from 9.6% in the month prior.
Food prices rose 0.3% (month-on-month) bringing the year-on-year rate to -0.1%, up from -1.1% in April.
The Bank of Canada’s core measures were either flat or down, with CPI-median edging down to 1.5 % (from 1.6%), CPI-trim to 1.2% (from 1.3%), and CPI-common unchanged at a feeble 1.3%.
Key Implications
Inflation pressures remain muted in Canada. Even outside of energy prices, core measures show little in the way of burgeoning price pressures. In the past the weakness has been concentrated in goods categories, but even services decelerated in May.
The soft inflation environment is likely enough for the Bank of Canada to hold off on raising interest rates at its next meeting in July. Nonetheless, a continuation of above-trend economic growth should reduce slack and help turn inflation higher over the second half of this year, allowing the Bank of Canada to nudge up the overnight rate in October.
