Canada: CPI probably fell 0.1% in June – BMO CM

Canada’s consumer prices probably fell 0.1% in June, with further declines in energy prices pulling the headline lower, according to Benjamin Reitzes, Canadian Rates & Macro Strategist at BMO Capital Markets.

Key Quotes

“Gasoline prices likely fell about 4%, while fuel oil fell around 2%. June is a seasonally soft month for CPI anyway, as clothing and health/personal care have fallen on average over the past five years. Food and alcohol & tobacco also tend to be flat to slightly higher. One area of strength will be home replacement costs after the new home price index surged for a second straight month. Our call would trim annual inflation three ticks to 1.0% y/y. Note that July isn’t likely to look much better as electricity costs plummeted again in Ontario which is expected to subtract another one-tenth from inflation.”

“The Bank of Canada’s core CPI measures fell to an average of 1.3% in May, the slowest pace since March 1999. Given the softness we’re anticipating in headline, we can’t rule out another drop in one or two of the core measures. However, more favourable comparables in H2 suggest core CPI should soon trough. Indeed, the Bank of Canada isn’t overly fussed by the soft underlying inflation measures, with the pullback in auto price gains and electricity costs temporary factors. Don’t expect any impact on BoC thinking unless the slowdown accelerates.”