Canada’s CPI accelerated to 2.9% in May, reducing the odds of a Bank of Canada cut in July

Canada’s inflation numbers beat market estimates, with headline inflation accelerating from 2.7% year-on-year to 2.9% in May versus consensus for a decline to 2.6%.

On a monthly basis, headline CPI rose from 0.5% to 0.6% instead of falling to the estimated 0.3% while core CPI rose from 0.2% to 0.6%.

Other inflation measures also turned out to be stronger than expected, capping four consecutive months of lower price pressures:

• May headline CPI YoY: 2.9% (2.6% expected, 2.7% previous)
• May headline CPI monthly: 0.6% (0.3% expected, 0.5% previous)
• May core CPI monthly: 0.6% (previously 0.2%)
• May CPI decline year-on-year: 2.9% (expected 2.8%, previous reading reduced to 2.8%)
• May CPI average y/y: 2.8% (2.6% expected, 2.6% previous)

Link to the May 2024 Canadian CPI report

The components of the CPI report revealed that the rise in overall inflation was mostly due to higher prices for services, led by cellular services, travel and rentals, and air transportation.

Store-bought food prices also rose from the previous month’s gains, marking their first acceleration since June 2023.

Market reactions

Canadian dollar against major currencies: 5 minutes

Canadian dollar traders appear to be bracing for a downbeat Canadian CPI report, as the Canadian currency was trending lower against the majority of its counterparts (excluding the Australian dollar) ahead of the actual release.

We saw a sharp rise across the board after results revealed stronger than expected inflationary pressures, which could raise doubts about the Bank of Canada’s interest rate cut in July.

From there, the Canadian dollar retreated from its rally and was unable to make any progress past the post-CPI highs before retreating to the US dollar and British pound. However, it managed to maintain its gains and squeeze a few extra pips against the Australian, New Zealand and Euro a few hours after the release.

Are you looking for your own place to record your market observations and trading statistics? If so, check out TRADEZELLA! It’s an easy-to-use blogging tool that can yield valuable insights into performance and strategy! You can easily add your thoughts, plans and track your psychological state with each trade. Click here to see if this is right for you!

Disclaimer: Babypips.com earns a commission from any signups through our affiliate link. When you subscribe using our affiliate links, it helps us maintain and improve our content, much of which is free and available to everyone – including Pipsology School! We appreciate your support and hope you find our content and services useful. Thank you!