Canada: Lack of inflation to be temporary – NBF

Today’s data in Canada showed an increase of only 0.1% in the CPI in May, below expectations. Matthieu Arseneau, analyst at the National Bank of Canada, point out they expect the trend inflation to get back to the Bank of Canada target sooner rather than later.

Key Quotes:

“Canada’s consumer price index rose 0.1% (m/m) in May in seasonally adjusted terms causing the year-on-year inflation rate to remain unchanged at 2.2%. This was well below consensus expectations calling for a 2.6% annual rate.”

“Headline inflation was significantly below expectations in May. The rise in gasoline prices was offset by weaknesses elsewhere as shown by CPI excluding food and energy being down in the month, a first since 2012. True, some specific weaknesses could be highlighted for example car prices which registered their sharpest May drop on record. But other components also contributed to May’s weakness.”

“We expect this lack of inflation to be temporary as tight labour market should continue to support wages and the weakness of the Canadian dollar combined with potential tariffs could mean stronger import prices down the road. All in all, we expect trend inflation to get back to the Bank of Canada target sooner rather than later.”