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Underlying CPI Trends At Target Mid-Point Gives BoC Further Encouragement

CANADA DATA
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  • Whilst the BoC’s trim and median measures saw offsetting prior revisions for the small miss in April in Y/Y terms, the latest CPI trends are more encouraging for the BoC (see summary figures above).
  • Some observations:
  • The trim/median 3-mth run rate only accelerated from 1.4 to 1.6% annualized vs the 1.8-1.9 that had appeared more in line with consensus.
  • The trim/median 6-mth rate held steady at 2.4% annualized, its third month within the 1-3% target range. Notably, it also remains below the Y/Y metric (of 2.75%) and continues to imply downward momentum, in contrast to the US where the core CPI 6-mth rate has been above the Y/Y for three months now.
  • Alternate core CPI metrics remain even softer: CPIxFE fell four tenths to 2.2% (lowest since Mar’21) and CPIX fell five tenths to just 0.9% (lowest since Sep’20).
  • Take a crude unweighted average of these four core measures and our composite of “underlying” inflation eased two tenths to 2.0% annualized on a six-month basis.
  • BoC-dated OIS June cut odds slowly build, now to ~15bps vs ~11bps pre-release.
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  • Whilst the BoC’s trim and median measures saw offsetting prior revisions for the small miss in April in Y/Y terms, the latest CPI trends are more encouraging for the BoC (see summary figures above).
  • Some observations:
  • The trim/median 3-mth run rate only accelerated from 1.4 to 1.6% annualized vs the 1.8-1.9 that had appeared more in line with consensus.
  • The trim/median 6-mth rate held steady at 2.4% annualized, its third month within the 1-3% target range. Notably, it also remains below the Y/Y metric (of 2.75%) and continues to imply downward momentum, in contrast to the US where the core CPI 6-mth rate has been above the Y/Y for three months now.
  • Alternate core CPI metrics remain even softer: CPIxFE fell four tenths to 2.2% (lowest since Mar’21) and CPIX fell five tenths to just 0.9% (lowest since Sep’20).
  • Take a crude unweighted average of these four core measures and our composite of “underlying” inflation eased two tenths to 2.0% annualized on a six-month basis.
  • BoC-dated OIS June cut odds slowly build, now to ~15bps vs ~11bps pre-release.