Canada’s inflation numbers beat market estimates, with headline inflation accelerating from 2.7% year-on-year to 2.9% in May versus consensus for a decline to 2.6%.
On a monthly basis, headline CPI rose from 0.5% to 0.6% instead of falling to the estimated 0.3% while core CPI rose from 0.2% to 0.6%.
Other inflation measures also came in stronger than expected, capping four straight months of falling price pressures:
- May headline CPI YoY: 2.9% (2.6% expected, 2.7% previous)
- Core CPI May: 0.6% (0.3% expected, 0.5% prior)
- Core CPI May MoM: 0.6% (0.2% Previous)
- May CPI decline year-on-year: 2.9% (expected 2.8%, previous reading reduced to 2.8%)
- May CPI average y/y: 2.8% (2.6% expected, 2.6% previous)
Link to Canada’s May 2024 CPI report
Components of the CPI report revealed that the rise in overall inflation was mostly due to rising service prices, led by cellular services, tours, rentals, and air transportation.
Store-bought food prices also rose from the previous month’s gains, marking their first acceleration since June 2023.
Market reactions
Canadian dollar against major currencies: 5 minutes
Canadian Dollar Overlay Against Major Currencies Chart by TradingView
Canadian dollar traders appear to be bracing for a downbeat Canadian CPI report, as the Canadian currency was trending lower against the majority of its counterparts (excluding the Australian dollar) ahead of the actual release.
Sharp gains were seen across the board after the results revealed stronger-than-expected inflationary pressures that could put the Bank of Canada’s July rate cut in doubt.
From there, the Canadian dollar retreated from its rally and was unable to make any progress past the post-CPI highs before retreating to the US dollar and British pound. However, it managed to maintain its gains and squeeze a few extra pips against the Australian, New Zealand and Euro a few hours after the release.
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