CANADIAN INFLATION DATA:
- May Consumer Price Index rises 1.4% m-o-m, five tenths of a percent above estimates. The annual rate, for its part, surges to 7.7%, the highest level in nearly 40 years.
- Core inflation advances 0.8% m-o-m and 6.1% y-o-y, also topping expectations
- USD/CAD[1] holds daily gains after the Canadian CPI report crosses the wires, but the move is linked to risk-off sentiment and falling oil[2] prices
Most Read: Central Bank Watch – Bank of Canada, RBA, and RBNZ Interest Rate Expectations[3]
Price pressures strengthened last month in Canada, bolstered by soaring energy and food costs, further eroding consumer purchasing power and increasing the risk of inflation becoming seriously entrenched in the economy, a situation that could lead to more aggressive monetary policy tightening in the coming months.
According to Statistics Canada, the consumer price index, which measures a comprehensive basket of goods and services, surged 1.4% on a monthly basis in May, bumping the annual reading to 7.7%, the highest level since January 1983, a figure almost four times the central bank's 2% target. Analysts surveyed by Bloomberg News had expected headline CPI to rise just 1.0% m-o-m and 7.4% y-o-y.
Details of the report showed that energy contributed the most to the monthly increase, as this category spiked 8.5% m-o-m on the back of a 12% m-o-m surge in gasoline. With prices at the pump rising further during the first half of June, energy expenditures will remain biased to the upside in the near-term, suggesting that the headline index may exceed 8% later in the year before topping out.
Core CPI, which excludes energy and food and tends to reduce transitory noise created by volatile items, climbed 0.8% m-o-m and 6.1% y-o-y. The annual rate was the hottest
