EN 
For week of June 22nd
Canada’s Consumer Price Index report for May on Monday will provide an updated reading on inflation trends following the Bank of Canada’s decision to leave interest rates unchanged earlier this month.
We expect headline inflation to rise to 3% year-over-year in May, up from 2.8% in April. Energy prices are expected to remain the largest contributor to price growth with the annual gain likely edging higher after jumping to 19% in April. But, food price inflation likely also increased. We look for a tick up to 3.8% after slowing to 3.5% in April from 4% in March.
Energy prices have continued to drive headline inflation higher, but there’s nothing the BoC can do about global oil prices.
The central bank would be far more concerned about a broadening of price pressures beyond directly impacted energy prices. But, recent reports have generally shown strength in headline CPI has been concentrated in a limited number of categories with underlying measures staying closer to the BoC’s 2% inflation target.
We look for core inflation measures to remain largely contained in May despite the increase in headline inflation. CPI growth excluding food and energy likely held at 1.5% y/y, while the BoC’s preferred median and trim CPI measures stayed close to the 2% target.
The May report will also incorporate updated CPI basket weights based on 2025 consumer spending patterns. The largest changes include higher weights for transportation, health and personal care expenditures, partially offset by a lower weight for shelter. While the revised basket may result in modest changes to the contribution of specific components, we expect little impact on total inflation measurements.
-
Canada’s April Survey of Employment, Payrolls and Hours (SEPH) will be watched closely after a larger-than-expected bounce back in jobs in the timelier Labour Force Survey (LFS) in May. Job vacancies in the SEPH (not available in LFS) will be key, and have been edging higher in a sign that labour demand is stabilizing. We expect SEPH wage growth will continue to underperform surprisingly firm LFS readings in April. But, May data showed LFS wage growth slowed to 3% y/y, more consistent with an edging lower but still elevated unemployment rate.
-
We expect U.S. personal income to rise 0.4% m/m in May, trailing the 0.6% m/m increase we anticipate for personal spending, indicating consumers are continuing to spend beyond their income growth. This spending is being funded by drawing down savings rather than higher incomes with the personal savings rate expected to potentially decline further from April’s 2.6%. The data should confirm that U.S. consumers are maintaining spending momentum at the expense of their savings buffer.
About the authors:
Nathan Janzen is an Assistant Chief Economist, leading the macroeconomic analysis group. His focus is on analysis and forecasting macroeconomic developments in Canada and the United States.
Abbey Xu is an economist at RBC. She is a member of the macroeconomic analysis group, focusing on macroeconomic forecasting models and providing timely analysis and updates on economic trends.
Explore the latest from RBC Economics:
Canadian cardholder spending holds up but momentum eases
The economy is bruised, not broken
Delayed start to spring for Canada’s housing market
May spending to outpace income as the savings rate slides
FOMC Recap: Warsh ushers in new era at the Fed
Share these insights with your network:
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. The reader is solely liable for any use of the information contained in this document and Royal Bank of Canada (“RBC”) nor any of its affiliates nor any of their respective directors, officers, employees or agents shall be held responsible for any direct or indirect damages arising from the use of this document by the reader. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
This document may contain forward-looking statements within the meaning of certain securities laws, which are subject to RBC’s caution regarding forward-looking statements. ESG (including climate) metrics, data and other information contained on this website are or may be based on assumptions, estimates and judgements. For cautionary statements relating to the information on this website, refer to the “Caution regarding forward-looking statements” and the “Important notice regarding this document” sections in our latest climate report or sustainability report, available at: https://www.rbc.com/community-social-impact/reporting-performance/index.html. Except as required by law, none of RBC nor any of its affiliates undertake to update any information in this document.
