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TD See High Bar For CPI Derailing Another Rate Cut In July

CANADA
  • TD see headline CPI edging lower to 2.6% Y/Y in May on the back of a 0.3% M/M (NSA) increase on “persistence in the shelter component alongside a modest rebound in core goods”.
  • However, preferred core measures shouldn’t match this deceleration with CPI-trim/median seen holding at 2.9%/2.6% Y/Y “as 3m annualized rates of core CPI edge back to the midpoint of the target range.”
  • They see continued shelter cost pressures "as another large increase for rents and mortgage interest costs keeps shelter inflation running near 6.5% y/y [...] despite some early evidence of stabilizing population growth”
  • Beyond shelter, "we see less scope for another large deceleration across other components after the meaningful progress over the last four months.”
  • They don’t expect the BoC to be alarmed by stable core inflation rates, “especially with one more CPI report before the next BoC decision; we see a high bar for a hawkish surprise to derail another rate cut in July.”
  • New basket weights expected to be worth “~0.2pp to headline CPI over the next twelve months, adding to the challenge of bringing inflation all the way back to target. This reflects the combined impact of larger weights for shelter components along with their expected persistence”
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