The headline Canadian consumer price index rose 0.9% year-on-year in May, after an increase of 0.8% in the month prior. The Bank of Canada's core inflation index, which excludes the eight most volatile components, was up 2.2% relative to May of last year, following a rise of 2.3% in April.
"There were no big surprises in May's inflation reading. Headline inflation continues to be held back by the impact of low oil prices, the effects of which will likely continue to be felt in the coming months. In contrast, core inflation is expected to remain above the Bank of Canada's 2% target, supported in part by the low level of the Canadian dollar relative to 12 months ago. With the dollar expected to remain weak, it will take some time before these exchange rate pass-through effects fade from the data." estimates TD Economics
The heart of the Bank of Canada's mandate is to achieve an inflation rate at or near 2% over the medium term. Despite both headline and core inflation having deviated from this target for some time, inflation is unlikely to be a catalyst for monetary policy changes in the immediate future.
"Currently, inflation is being driven to a large extent by special factors (including the dollar and energy prices), and inflation expectations remain firmly rooted around the 2% target. At the same time, the Bank faces the task of balancing growth and financial stability considerations. As a result, the current level of the policy rate (0.75%) appears to be appropriate." says TD Economics
