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Variety Of Core CPI Metrics Watched For Back-to-Back Cut Clues

CANADA
  • Canada CPI for May is released on Tuesday for the second major release since the BoC opted for its first cut of the cycle on Jun 5 in a not fully priced decision.
  • The employment report followed shortly after on Jun 7 with a mostly as expected report although wage growth notably surprised as it tilted back above 5% Y/Y.
  • The BoC minutes showed a consideration of waiting until July to cut but ultimately four months of core CPI easing warranted the move (which we felt justified with some particularly soft trends), albeit whilst advocating a gradual approach to cuts.
  • For May, Bloomberg consensus sees headline CPI easing a tenth to 2.6% Y/Y and the average of median and trim CPI dipping just 0.05pps to 2.7% Y/Y.
  • As usual, we also watch higher frequency metrics (3-mth and 6-mth at 1.6% and 2.4% annualized in April) along with the various more traditional core measures which have been trending softer still over six months (CPIxFE 2.2%, CPIX 0.9%).
  • The breadth of price increases will also be in focus after some sizeable moderation across the basket including some long-awaited improvement in services after months of stickiness.
  • It’s worth noting that the Jun 18 update to CPI weights adds an extra layer of consideration. BMO estimate the changes could make inflation "a touch stickier", but the impact will be minor and didn’t materially change their CPI forecast.
  • Markets have held a range of 15-20bp of cuts for the Jul 24 meeting since the June cut. It’s currently at the low end of this range although could see a further decline if Macklem strongly pushes the gradual nature of cuts later today.
  • There’s still a lot of data to come before the Jul 24 decision though, not least the June labour report (Jul 5), Q2 BOS/CSCE surveys (Jul 15) and June CPI (Jul 16).
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