The week starts with no major scheduled economic events for the European session, while later on Monday Canada will release inflation data.
Tuesday will bring the BoJ core CPI y/y release, along with the flash manufacturing and services PMIs for Australia, the eurozone, the U.K. and the U.S. On Wednesday, markets will focus on the BoJ summary of opinions, while Australia will release its inflation data and will follow up on Thursday with the employment change and unemployment rate figures.
Thursday will also bring the U.S. core PCE price index m/m, final GDP q/q, unemployment claims and durable goods orders m/m. Finally, on Friday, Japan will release the Tokyo core CPI y/y, while the U.S. will get the revised University of Michigan consumer sentiment index and revised inflation expectations.
Over the week, several FOMC members are also expected to deliver remarks.
In Canada, the consensus for CPI m/m is 0.7%, compared to the prior 0.4%. Median CPI y/y is expected at 2.1%, unchanged from the previous reading, while trimmed CPI y/y is also forecast to remain steady at 2.0%. The common CPI y/y measure is expected to hold at 2.5%.
This week’s figures will provide a clearer picture of the current inflation trend in Canada. As a reminder, the BoC left rates unchanged at its latest meeting and will continue monitoring incoming data to determine its next policy steps.
RBC analysts expect headline inflation to rise to 3.0% y/y in May, up from 2.8% in April. One of the main drivers will be energy prices, which are likely to remain the largest contributor, with annual price growth in the sector expected to increase further after surging 19% in April. Food inflation is also projected to pick up modestly, with forecasts pointing to a rise of 3.8% compared to 3.5% in the previous month.
However, the BoC is unlikely to focus solely on higher energy prices when assessing monetary policy and will be more concerned with whether inflation pressures are spreading more broadly across the economy. Recent data suggests that price increases remain concentrated in a limited number of categories, while underlying inflation trends continue to move closer to the central bank’s 2% target.
Core inflation measures are therefore expected to remain relatively stable in May. CPI excluding food and energy is projected to hold at 1.5% y/y, while the BoC’s preferred median and trimmed measures are expected to remain close to target, reinforcing the view that underlying inflation remains contained despite higher headline readings.
The May CPI release will also incorporate updated basket weights based on 2025 consumer spending patterns with transportation, healthcare, and personal care categories having a greater influence on the index. However, these adjustments are not expected to materially alter the overall inflation picture.
In Australia, the consensus for CPI m/m is -0.4%, compared to the prior 0.4%. CPI y/y is expected at 4.3%, up from 4.2%, while trimmed mean CPI m/m is forecast to print 0.3% vs. 0.3% previously.
April data came in below expectations, with headline inflation easing, while trimmed-mean inflation moved higher to 3.4% y/y. Despite the increase in underlying inflation, there was limited evidence that higher energy costs were creating broader price pressures across the economy.
Markets will closely monitor this week’s data to assess whether elevated energy prices are beginning to translate into more persistent inflationary effects.
Westpac analysts forecast that CPI will decline by 0.3% m/m, reflecting lower fuel costs and softer clothing prices, although base effects are expected to push the annual inflation rate higher.
Underlying inflation is expected to firm further, with trimmed mean CPI forecast to rise 0.4% m/m to 3.6% y/y. However, uncertainty remains around the pace and extent of price adjustments, leaving room for a softer-than-expected outcome.
Moving to Australian labour market data, the consensus for employment change is 30.3K, compared to the prior -18.6K, while the unemployment rate is expected to decline from 4.5% to 4.4%.
Employment fell by 18.6K in April, missing expectations for a modest gain and marking a notable downside surprise in the report. The weakness may have been influenced by seasonal factors, as the Labour Force Survey covered the entire Easter long weekend. This may have captured more holiday-related softness in employment than seasonal adjustments were able to fully account for.
Westpac expects employment to rebound by 45K in May, above the market consensus of around 30K. Even with a strong monthly recovery, employment growth across April and May would average roughly 13K per month, representing a slower pace compared with the approximately 30K monthly gains recorded during the first quarter.
The upcoming report will therefore be closely watched to determine whether April’s decline was mainly temporary or whether it reflects a broader moderation in labour market momentum.
Australia’s unemployment rate is forecasted to drop to 4.4% in May from 4.5% in April, in line with market expectations. April’s increase pushed the unemployment rate to its highest level since the COVID-related disruptions in late 2021, as a sharp decline in employment outweighed a modest decline in labour force participation.
For May, participation is forecast to rise slightly to 66.8% from 66.7%, while the expected rebound in employment is likely to help bring the unemployment rate back down to 4.4%.
In the U.S., the consensus for the core PCE price index m/m is 0.3%, compared to the prior 0.2%; personal income m/m is expected at 0.4% vs. 0.0% previously; and personal spending m/m is forecast at 0.6%, compared to 0.5% prior.
Consumer spending is expected to remain resilient in May, with personal spending forecast to rise 0.6%. However, much of the increase is likely to reflect higher prices, particularly from gasoline, rather than stronger underlying demand. The PCE price index is also expected to increase, pushing annual inflation above 4%, mainly due to energy-related pressures.
Recent support from larger tax refunds has helped offset higher costs, but this boost is beginning to fade. At the same time, weaker income growth and lower savings levels suggest households are relying more on existing resources to maintain spending, according to Wells Fargo analysts. While consumption is expected to hold up in the second quarter, spending growth is likely to remain moderate at around 2% annualized rather than accelerate significantly.
In Japan the consensus for the Tokyo core CPI y/y is 1.6% vs. prior 1.3%. The increase will largely reflect higher energy prices and the effects of a weaker yen.
ING analysts project both headline and core CPI to accelerate to 1.7% year-on-year, compared with 1.4% and 1.3% in the previous release, respectively. Government support measures have helped contain the pace of price increases in recent months, so Tokyo inflation is still expected to remain below the Bank of Japan’s 2% inflation target.
This article was written by Gina Constantin at investinglive.com.
