Canadian CPI Surprise

The Canadian dollar jumped on news that Canadian CPI had surged by 1.0 percent for the month of May.  This brought the year over year total to 2.2 percent for headline inflation which is well above expectations.

The core CPI number was much more tame and level with expectations coming in at only 0.3 percent compared to April levels and only up 1.5 percent compared to the previous 12 months.

This CPI report was similar to many others coming out around the world showing a gradual increase in pressure on the core number, but overshooting on the headline number, which is largely discounted by central banks as the less important number.  Sooner or later, the central banks will have to start realizing that while they may not make their primary rate decisions based on the headline inflation number, which includes food and energy, but the headline number is having a heavy effect on consumer spending and demand.  As costs continue to increase for everyone, the prices that factor into the headline numbers will eventually creep into the core numbers as people need more money to survive.  Slowing growth or not, it looks like the Bank of Canada is going to have to refrain from lowering rates and fuelling an inflation boom similar to what the US Federal Reserve has done.