| Consensus | Actual | Previous | |
|---|---|---|---|
| CPI - M/M | 0.3% | 0.6% | 0.5% |
| CPI - Y/Y | 2.6% | 2.9% | 2.7% |
| Core CPI - M/M | 0.6% | 0.3% | |
| Core CPI - Y/Y | 2.9% | 2.7% |
Highlights
Consumer prices in Canada rose 0.6 percent in May from April, not seasonally adjusted, bringing the 12-month increase to 2.9 percent in May from 2.7 percent in April. Forecasters in an Econoday survey looked for increases of 0.3 percent on the month and 2.6 percent from a year ago.
Excluding food and energy, the consumer price index was also up 0.6 percent on the month and 2.9 percent year-over-year.
The central bank projects inflation to average 2.9 percent in the second quarter, and today's report puts inflation on track to meet this projection, though it will prove disappointing given an expectation for a lower result. The upside miss undercuts expectations for a rate cut in July.
The Bank of Canada's own core measures of inflation were flat at 2.7 percent year-over-year on average in May from 2.7 percent in April, with all three measures still below 3.0 percent, the top of the bank's target range.
Statistics Canada blamed the acceleration in CPI on services, up a nasty 4.6 percent in May following a similar 4.2 percent bump in April. The culprits included cellular phone services, travel tour prices, rent, and air transport. Goods prices were up 1.0 percent from a year ago, the same as in April while grocery prices were up 1.5 percent in May versus an increase of 1.4 percent in April.
On a monthly unadjusted basis, the big riser was travel tour fees, up 10.4 percent in May from April, and traveler accommodation, up 16.0 percent. Grocery prices rose 1.1 percent, the largest one-month rise since January 2023.
Looking at main contributors to the 12-month increase, mortgage interest costs are up 23.3 percent reflecting higher interest rates, rent is up 8.9 percent, restaurant food is up 5.6 percent, and car insurance premiums are up 7.0 percent. On the rent front, Ontario saw rents up 8.4 percent in May, up from 6.1 percent in April.
The main downward contributors on year are telephone services, down 14.6 percent (though the rate of decline diminished from April), internet access services, down 9.7 percent, computers, down 9.9 percent, and men's clothing, down 5.1 percent.
Excluding food and energy, the consumer price index was also up 0.6 percent on the month and 2.9 percent year-over-year.
The central bank projects inflation to average 2.9 percent in the second quarter, and today's report puts inflation on track to meet this projection, though it will prove disappointing given an expectation for a lower result. The upside miss undercuts expectations for a rate cut in July.
The Bank of Canada's own core measures of inflation were flat at 2.7 percent year-over-year on average in May from 2.7 percent in April, with all three measures still below 3.0 percent, the top of the bank's target range.
Statistics Canada blamed the acceleration in CPI on services, up a nasty 4.6 percent in May following a similar 4.2 percent bump in April. The culprits included cellular phone services, travel tour prices, rent, and air transport. Goods prices were up 1.0 percent from a year ago, the same as in April while grocery prices were up 1.5 percent in May versus an increase of 1.4 percent in April.
On a monthly unadjusted basis, the big riser was travel tour fees, up 10.4 percent in May from April, and traveler accommodation, up 16.0 percent. Grocery prices rose 1.1 percent, the largest one-month rise since January 2023.
Looking at main contributors to the 12-month increase, mortgage interest costs are up 23.3 percent reflecting higher interest rates, rent is up 8.9 percent, restaurant food is up 5.6 percent, and car insurance premiums are up 7.0 percent. On the rent front, Ontario saw rents up 8.4 percent in May, up from 6.1 percent in April.
The main downward contributors on year are telephone services, down 14.6 percent (though the rate of decline diminished from April), internet access services, down 9.7 percent, computers, down 9.9 percent, and men's clothing, down 5.1 percent.
Market Consensus Before Announcement
After April's as-expected 2.7 percent rate that was down from March's 2.9 percent, consumer prices in May are expected to slow further to 2.6 percent.
Definition
The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly and annual changes in the CPI provide widely used measures of inflation. The policy target measure for the Bank of Canada (BoC), the annual CPI rate can be distorted by swings in the more volatile subsectors so the central bank also monitors an adjusted measure of the CPI that excludes a range of volatile categories in order to get a better handle on underlying trends.
Description
The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Canada, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
As the most important indicator of inflation the CPI is closely followed by the Bank of Canada. The Bank of Canada has an inflation target range of 1 percent to 3 percent but focuses on the 2 percent midpoint. It uses the CPI and three measures of the underlying rate as the prime inflation indicators. Markets also look at core rate which excludes food and energy.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
As the most important indicator of inflation the CPI is closely followed by the Bank of Canada. The Bank of Canada has an inflation target range of 1 percent to 3 percent but focuses on the 2 percent midpoint. It uses the CPI and three measures of the underlying rate as the prime inflation indicators. Markets also look at core rate which excludes food and energy.
