Canada CPI preview
Canada CPI preview: CPI, due Friday, is expected to dip 0.1% (m/m, nsa) in May after the 0.1% rise in May. The CPI is projected to grow at a 2.2% y/y pace in June, matching the growth rate in May and April. Gasoline prices fell about 2% in June (m/m, nsa), which drives our projection for the 0.1% dip in total CPI during June. Additional factors include auto prices, which have seen substantial declines over the past three months and could continue to decline in June. Falling home prices could also be a drag, although mortgage interest costs are moving higher. Finally, cell phone costs have seen big swings in recent months, making this a potential disruptor of our June CPI estimate. The BoC has maintained that (an unwinding) of temporary factors is boosting CPI. They note that it is important to look at core CPI. Analysts expect the core CPI measures to hold at 1.9%, which is consistent with the BoC's view on inflation. Also, the BoC's Q2 outlook survey revealed that inflation expectations remain inside the BoC's 1-3% control range, albeit with a drift to the upper half of the band. But in our view, the main consideration here is that they can tolerate some heat on the CPI numbers given the economy is finally in expansion mode. Better growth opens up more capacity (via investment and increased labour force participation), allowing them to tolerate faster inflation growth than they usually would. View the preview.