David Rosenberg: Bank of Canada has nothing to fret about despite CPI hysteria

financialpost.com:

The bond bulls and Bank of Canada policy doves were on the receiving end of a splash of water this past week. The consumer price index doubled consensus expectations in May, coming in at 0.6 per cent (not seasonally adjusted). That, in turn, pushed the year-over-year trend back up to 2.9 per cent from 2.7 per cent in April (consensus here was looking for further deceleration to 2.6 per cent).

The month-over-month move in seasonally adjusted terms was less scary at 0.3 per cent, but that is still the highest print for the year to date. It was also a setback to see a 0.4 per cent in the old way we used to assess the core CPI in Canada (stripping out food and energy), which ended five months of benign readings and is the highest print since September 2022.

The core median inflation rate also hooked back up to 2.8 per cent from 2.6 per cent, while the core trim measure ticked higher to 2.9 per cent from 2.8 per cent (both were up 0.3 per cent on a month-over-month basis).

This adds some doubt as to whether the Bank of Canada will pull the trigger again at the next meeting on July 24. There is another CPI report yet to come (on July 16) before that meeting, and we still feel that the central bank should cut again, given the fact that the economy is in excess supply, which means the pressures on inflation going forward will be down, not up. The CPI data just goes to show that nothing moves in a perfectly straight line.

That said, there were some encouraging signposts. The common core inflation rate slowed for the ninth month in a row — to 2.4 per cent year over year from 2.6 per cent in April, 5.2 per cent a year ago and the lowest since April 2021. This is a key metric because this measure of inflation screens out the noise