Canada – The consumer price index rose 0.4% in May, allowing the year-on-year inflation rate to decline to 1.5% from 1.7%. In seasonally adjusted terms, CPI rose 0.2% as 6 subcomponents experienced gains. Transportation (+0.6%), clothing & footwear (+0.6%), household operations (+0.3%), alcohol/tobacco (+0.2%), shelter (+0.1%) and recreation (+0.1%) experienced the strongest gains while prices were flat for healthcare and declining for food (-0.5%). The core CPI, which excludes eight of the most volatile items, was up 0.3%, which allowed the year-on-year core inflation rate to drop to 2.1% from 2.2%.
In seasonally-adjusted terms, core CPI was up 0.2%. Excluding food and energy, prices rose 0.3% in seasonally adjusted terms for May. The Canadian CPI data for May was weaker than expected for the headline. As expected, gasoline prices rose at a pace above historical norms but food inflation was significantly down perhaps reflecting the appreciation of the CAD since January’s low. Core inflation remains strong with the 3-month annualized change accelerating to 2.9%, its strongest pace in a year. Keep in mind that there is a significant lag for the effect of a weaker currency (via import prices) on some components of the CPI. We see core inflation decelerating to 1.9% in 2016 from 2.2% last year.
Again in April, manufacturing shipments rose 1.0% to recoup the ground lost in March. However, the gain was not generalized, with sales increasing in only 10 of 21 industries, representing 55% of total shipments. The major positive contributors were transportation equipment (+2.1%), primary metals (+3.9%), and petroleum and coal products (+8.3%).
Unfilled orders fell for a third consecutive month (-0.4%) to their lowest level since December 2014. Inventories declined in 15 industries, but this was partially offset by increases in petroleum and coal products (+0.5%) and primary metals (+2.0%). As a result, the inventory-to-sales ratio dropped from 1.43 to 1.41. In real terms, shipments grew 1.4%. However, the growth boost from factories is not likely to compensate for the drag from Alberta’s wildfires in the second quarter. We remain of a mind that Canada’s economy contracted in Q2 after registering above-potential growth in Q1.
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