Canada Economics: Few signs of upward pressure on core inflation

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Canada Economics: Few signs of upward pressure on core inflation

Canada Economics

22 June 2026 Citi Research

Data – Headline CPI rose 1.0%MoM and to 3.2%YoY in May, a stronger increase

than consensus expectations and our 0.7%MoM/2.9%YoY forecast.

CPI-trim and CPI-median were both unchanged at 2.0% and 2.1% respectively. On

a 3-month basis, the average of CPI-trim and CPI-median rose to 2.3% annualized

from 1.8%. CPI excluding food and energy (and the measure that also excludes

taxes) rose modestly to 1.6%YoY from 1.5%YoY.

Citi’s view – Headline CPI was stronger than expected in May following a downside

surprise in April, but ultimately does not change our view that underlying inflation

is stable close to 2% and possibly even running a bit below target. BoC officials

have expected overall CPI close to 3% temporarily, and the next release for June is

likely to be much softer, reflecting the decline in gasoline prices. We continue to

expect a more dovish shift in communications in July and rate cuts later this year.

Strength in May CPI was largely concentrated in the same components that were

surprisingly weak in April, such as bounce-back in food at home and recreation

services. We would not be surprised to see some continued strength in recreation

services prices in June, reflecting sporting events during the month. Recreation

goods prices like computers and equipment are also rising, reflecting memory cost

increases due to AI-demand. Airfares were stronger than we expected in May and

will likely rise more in June and July, months when airfares typically increase.

Shelter inflation remains modest, although now-higher mortgage rates led to a

slight increase in the mortgage cost component in May, the first since late-2025.