MNI DATA REACT: Canada May CPI -0.4% YOY, Lowest Since 2009

By Greg Quinn

     OTTAWA (MNI) - Canada's consumer prices unexpectedly fell 0.4% on year ago

levels in May as Covid-19 shutdowns weighed, the worst reading since the last

recession in 2009.

     The result ran against economist forecasts for CPI to be unchanged after a

0.2% decline in April. The 0.3% monthly price gain for May also lagged the 0.7%

median. 

     The report showed more evidence of a broad decline in prices. Inflation

excluding gasoline was 0.7%, the slowest pace since 2013, and the average of the

BOC's three core measures slowed to 1.7% from 1.8%.

     Goods prices tumbled 2.3% including a 30% drop in gasoline, and inflation

for services slowed to 1.3% in May from 2% in April.

     "This slowdown was broad-based, with travel, shelter and contract services,

such as telephone services and passenger vehicle insurance premiums, all

contributing," Statistics Canada said Wednesday from Ottawa.

     Canada faces record high unemployment and GDP declining at a 40% annualized

pace this quarter, with BOC Governor Tiff Macklem Tuesday telling lawmakers the

main risk is deflation that requires more QE and near-zero interest rates for a

while. 

     The dislocations of Covid-19 shutdowns are also distorting CPI as people

spend much less on gas and stock up at grocery stores, Macklem said. Food prices

rose 3.1% in May, when many restaurants remained closed. 

     Either way, the headline CPI figures are well outside the BOC's 1%-3%

target band. The central bank has said inflation will be around zero this

quarter and the economic shutdown in a worst-case scenario may mean negative

inflation throughout the year. 

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

[TOPICS: M$C$$$]