Canada’s consumer price index (CPI) which measures inflation fell 0.2% in May in seasonally adjusted terms. The year-on-year inflation rate to drop three ticks to 1.3%. This is historically below the target inflation rate of 2% to 3%, yet job or unemployment figures are strong and we look forward to April 2017 GDP results this week at the end of June.
Inflation And Oil: What Is The Link?
Recall that oil prices impact approximately 75% of the Consumer Price Index (CPI). Since the financial crisis, oil prices and inflation expectations have been highly correlated (See chart below). Oil prices declining 20% since the spring suggests the relationship between inflation and oil is intensifying. WTI is West Texas Intermediate and is a standard price measure for western oil. But what is more surprising is that underlying inflation remained weak in May.
Inflation in Canada was below expectations for a fourth month in a row. Dropping gasoline prices restrained the progression of the headline figure and this should continue to be the case in June as excess supply is putting downward pressure on global oil prices. Enjoy the entire report and READ the outlook here.