• Annual inflation in Canada declined from 4.4% in April to 3.4% in May.
• The annual rate is the lowest since June 2021.
•  USD/CAD rises after Canadian and US economic data to fresh high above 1.3160.

Annual inflation in Canada, as measured by the Consumer Price Index (CPI), declined to 3.4% in May from 4.4% in April, Statistics Canada reported on Tuesday. This reading came in line with market expectations and is the lowest since June 2021.  "The slowdown was largely driven by lower year-over-year prices for gasoline (-18.3%) resulting from a base-year effect. Excluding gasoline, the CPI rose 4.4% in May following a 4.9% increase in April."

On a monthly basis, CPI rose 0.4% in May, compared to analysts' estimate of 0.5%. "The largest contributors to the month-over-month increase were mortgage interest costs and travel services, which includes traveller accommodation and travel tours. On a seasonally adjusted monthly basis, the CPI rose 0.1%", reported Statistics Canada. 

Additionally, the Bank of Canada's Core CPI, which excludes volatile food and energy prices, dropped to 3.7% on a yearly basis from 4.1% in April, below the 3.9% of market consensus.

Market reaction

The Canadian Dollar weakened after the report. USD/CAD edged higher after the report, reaching a fresh daily high at 1.3172.