MNI 5 THINGS: Canadian May Inflation Seen Reaching 6-Year High

Repeats Story Initially Transmitted at 17:33 GMT Jun 19/13:33 EST Jun 19

By Yali N'Diaye   

     OTTAWA (MNI) - Statistics Canada will release the May Consumer Price Index

data Friday morning. Ahead of the release, we highlight five themes for

particular attention:    

     --SIX-YEAR HIGH

     Analysts in a MNI survey are expecting total inflation to rise 0.4% on the

month and 2.6% year-over-year, which would be the highest 12-month rate since

February 2012. The rise would further take the all-item CPI away from the Bank

of Canada's 2.0% mid-range target. A 2.6% inflation rate in May would put the

average so far for the second quarter at 2.4%, with one more month missing,

compared to the BOC's 2.3% projection.

     --LOOKING THROUGH GAS IMPACT

     Once more, higher gasoline prices are expected to explain part of May's

inflation gains. In April, gas prices rose 6.8% on the month and 14.2%

year-over-year. Excluding gas, total inflation was flat on the month instead of

a 0.3% overall gain, and year-over-year inflation was 1.7% instead of the

headline 2.2% figure. However, the Bank of Canada already warned in its May 30

policy statement that it would "look through the transitory impact of

fluctuations in gasoline prices." 

     --BASE EFFECTS

     Base effects should also boost May's readings. Overall energy prices fell

3.4% in May 2017 from the previous month. In addition, the Ontario Energy

Board-introduced electricity price cuts in May 2017 should no longer be a drag.

     --FOOD, MINIMUM WAGES, LOONIE

     Food prices, which were up 0.3% on the month and 2.2% year-over-year in

April, could feel the impact of the weakening Canadian dollar against the U.S.

dollar as trade tensions have been intensifying. Minimum wage hikes, which now

include both the province of Ontario, where they came into effect in January,

and the province of Quebec since May, should also be felt in the food industry,

in particular food purchased from restaurants. The latter item rose 4.5%

year-over-year in April, when it was the second upward contributor to the

12-month CPI gain.

     --UNDERLYING MEASURES FIRM

     As the Canadian economy continues to operate near or at capacity, core

measures of underlying inflation have been firming up, which could continue in

May. In April, the range of readings moved up to 1.9%-2.1% from 1.9%-2.0% in

March. CPI-common remained the same as in March at 1.9%. CPI-median and CPI-trim

both rose by 0.1 percentage point to 2.1%, respectively the highest rates since

October 2016 and June 2016.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com