June 25, 2024 | Inflation in Canada Throws Another Curveball: Core CPI Spikes Month-to-Month by Most since 2022

When the Bank of Canada cut its policy rates by 25 basis points earlier in June, it based that cut on the inflation rates that had cooled sharply, and it based further cuts on these trends continuing. But leery of just the sort of reversal inflation dished up today, BOC governor Tiff Macklem said at the press conference that future cuts would depend on two big Ifs: “If inflation continues to ease” (#1 IF), and if “our confidence that inflation is headed sustainably to the 2% target continues to increase” (#2 IF).

Core CPI – goods and services less food and energy – spiked by 4.9% month-to-month annualized in May from April, the hottest since September 2022 (blue), according to Statistic Canada today.

This spike caused the year-over-year Core CPI to accelerate to 2.9% (red).  It has now been stuck at this just-below-3% level for the fourth month in a row.

BOC’s preferred measures of underlying inflation accelerated.

The BoC’s two preferred inflation measuring sticks for its monetary policy decisions – “CPI trim” and “CPI median” – both re-accelerated sharply month-to-month. This caused the 12-month readings to accelerate for the first time after a series of declines, which was “unexpected.”

CPI trim jumped month-to-month by 4.1% annualized, a big acceleration and the hottest since December, and the third acceleration in four months (blue).

Year-over-year, CPI trim accelerated to 2.9%, the first acceleration after falling for three months in a row (red).

CPI median jumped month-to-month by 4.1% annualized, the most since December, and the second month in a row of acceleration. Year-over-year, CPI median accelerated to 2.8% (red).

“Inflation had not said its last word,” is how analysts of Economics and Strategy at the National Bank of Canada eloquently titled their inflation report today. They too were surprised.

This is the kind of surprise that the BOC – along with the Fed and the ECB – have been cautioning about. Inflation does this sort of thing. After it reaches the magnitude of the type it had reached in 2022, it doesn’t just go away quietly on its own.

Overall CPI month-to-month accelerated to 3.8% annualized, the sharpest increase since December.

Year-over-year, CPI accelerated to 2.9%. It has now been stuck at this just-below-3% level for the fifth month in a row.

Housing. The CPI for “shelter,” which includes rents and a separate measure tracking the costs of homeownership (insurance, mortgage rates, maintenance, replacement costs, etc.) remained very high, though it was less hot than it had been last year.

The CPI for shelter jumped by 4.7% month-to-month annualized (blue), and by 6.4% year-over-year (red), now in the 6.4% to 6.5% range for the fourth month in a row, the highest since January 2023:

The other major categories, on a year-over-year basis (from inflation rate in the prior month):

• Transportation: +3.5% (from 3.1%)
• Food: +2.4% (from 2.3%)
• Energy: +4.1% (from 4.5%)
• Healthcare and personal care: +3.6% (from 3.0%)
• Alcoholic beverages and tobacco products: +3.2% (from 3.4%)
• Recreation, education, reading: +1.3% (from 1.0%)
• Household operations, furnishings, equipment: -1.5% (from -2.1%)
• Clothing and footwear: -3.0% (from -2.6%).

Wolf Richter June 25th, 2024

Posted In: Wolf Street

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