Inflation figures from Canada surpassed market estimates, as headline inflation accelerated from 2.7% year-on-year to 2.9% in May versus the consensus of a dip to 2.6%.
On a monthly basis, headline CPI climbed from 0.5% to 0.6% instead of dipping to the estimated 0.3% figure while the core CPI rose from 0.2% to 0.6%.
Other measures of inflation also turned out stronger than expected, capping off four consecutive months of declining price pressures:
- Headline CPI in May y/y: 2.9% (2.6% expected, 2.7% previous)
- Headline CPI in May m/m: 0.6% (0.3% expected, 0.5% previous)
- Core CPI in May m/m: 0.6% (0.2% previous)
- Trimmed CPI in May y/y: 2.9% (2.8% expected, previous reading downgraded to 2.8%)
- Median CPI in May y/y: 2.8% (2.6% expected, 2.6% previous)
Link to Canada’s Consumer Price Index Report for May 2024
Components of the CPI report revealed that the pickup in overall inflation was mostly due to higher prices of services, led by cellular services, travel tours, rent and air transportation.
Prices of food purchased from stores also advanced from the previous month’s gain, chalking up its first acceleration since June 2023.
Market Reactions
Canadian Dollar vs. Major Currencies: 5-min
Overlay of CAD vs. Major Currencies Chart by TradingView
Loonie traders appeared to be positioning for a downbeat Canadian CPI report, as the Canadian currency was cruising lower against majority of its peers (except against the Aussie) leading up to the actual release.
A sharp pop higher across the board was seen after the results revealed stronger than expected inflationary pressures that likely put a July BOC cut in question.
From there, CAD pulled back from its surge and was unable to make headway past its post-CPI highs before retreating to the U.S. dollar and British pound. Still, it managed to hold on to its gains and squeeze out a few more pips versus the Aussie, Kiwi, and euro a few hours after the release.
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