- Canadian consumer prices dipped further into negative territory on a year-on-year basis in May, falling to -0.4% year-on-year (from -0.2% in April).
- Adjusting for seasonality, consumer prices edged up 0.1% month-on-month. Rising gasoline prices (+16.9%) was the main reason for the increase. Most other items saw prices decline month-on-month in May, reflecting the impact of the COVID-19 economic shock. Shelter, household operations, clothing and footwear, and health and personal care all saw prices decline on a month-on-month basis.
- Food prices (+0.1% m/n) and recreation, education and reading (+0.4% m/m) also bucked the trend. Meat prices moved sharply higher due to supply disruptions.
- Widespread price weakness was evident in the Bank of Canada’s core inflation measures, with all three moving lower in the month. CPI-common fell to just 1.4% (from a downwardly revised 1.5% in April). CPI-median edged down to 1.9% (from 2.0%), while CPI-trim fell to 1.7% (from 1.9% in April).
Key Implications
- The economic disruption caused by COVID-19 showed up in a broader array of consumer prices in May. Everything from rent to telephone services, to travel accommodation were noticeably lower in the month. Food prices, on the other hand, were held up by higher prices for meat, reflecting supply disruptions caused by COVID outbreaks and a lower Canadian dollar.
- There are promising signals in recent economic data and as economies open up, we expect to see some modest lift to consumer prices in the months ahead. Still, it will be a long road ahead and downside risks will remain elevated until a vaccine is broadly available.
