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May CPI Preview – Jun 27, 0830ET

CANADA
  • Headline CPI is seen slowing heavily from 4.4% to 3.4% Y/Y in May on base effects, with a fairly typical range to analyst views of 3.2-3.6% Y/Y.
  • The average of the median/trim is seen slowing from 4.2% to 3.95% Y/Y but more important will be M/M momentum. We back those Y/Y rates out to be between 0.35-0.40% M/M in May after the acceleration from 0.25% to 0.40% in April played an important role in bringing the BoC off the sidelines earlier this month.
  • Recall this from the statement: “However, with three-month measures of core inflation running in the 3½-4% range for several months and excess demand persisting, concerns have increased that CPI inflation could get stuck materially above the 2% target.”
  • A 0.35-0.4% M/M figure for the median/trim average would see the three-month run rate accelerate a little above 4%. Similarly, Scotia see core ex food & energy rising 0.4% M/M in seasonally adjusted terms after three months of 0.34%, pushing the three-month rate from 4.1% to 4.3% annualized.
  • As such, a realisation of an ‘as expected’ print could still see an increase from the ~2/3 of a hike priced for Jul 12 but barring a large surprise, reaction could be limited partly by waiting for both the BoC surveys and monthly GDP landing on Friday.
  • Note though that there could be a complication from a change in weights, with the updating from 2021 to 2022 expenditure with no historical revisions. It should see a greater weight on transportation and less on shelter but analysts are mixed on the impact, e.g. Scotia don’t expect a significant impact whereas CIBC see potentially slightly stronger monthly price increases.
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