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Canadian Inflation Peaked in May, TD Says, BoC on Hold
May CPI hit 3.2% on gasoline. Core inflation held at 2.1%. TD expects the peak is behind us, keeping the BoC on hold for months. Here's how that maps to CAD positioning.
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Canadian headline inflation hit 3.2% year-over-year in May, the highest reading since June 2022. The surge came from gasoline, up 33.2% from a year earlier. The consensus was 2.8%. TD Bank's economics team wrote that May likely marks the peak for this cycle, pointing to the drop in crude prices after the U.S.-Iran peace deal.
Excluding gasoline, inflation ran 2.2%. Food prices rose 3.8%, led by fresh fruit and vegetables at 9.0%. Shelter inflation gave back April's gain and settled at 1.7%.
Core inflation held steady. The Bank of Canada's preferred median and trim measures averaged 2.1% for May, unchanged from April. TD noted both measures have crept above 2% on a three-month annualized basis, in line with its earlier forecast. "We don't expect it to rise to a level that raises alarm bells for the Bank of Canada," the bank wrote.
Bond yields barely budged after the release. Dealers said the market read the headline spike as temporary and focused on the steady core print.
Why May Likely Marks the Peak
The case for a peak rests on two pillars. Crude oil has slid since the U.S.-Iran agreement, and gasoline retail prices typically follow with a lag. The 33.2% year-over-year jump in pump prices is unlikely to repeat in June. Food inflation should ease as supply-chain disruptions from earlier months recede. Shelter costs, the most persistent component, are already cooling on lower rent inflation and a softer housing market.