Consumer prices fall for first time in 10 years amidst pandemic fallout
May 20, 2020
Focus Area—Canadian Economics
The Conference Board of Canada’s Associate Director Todd Crawford offers insights on April’s consumer price index:
New data released today by Statistics Canada confirms the drastic impact that the COVID-19 pandemic is having on the Canadian economy. After posting a gain of just 0.9 per cent year-over-year in March, consumer prices fell by 0.2 per cent in April. This marks the first contraction in the country’s headline price index in more than a decade. Core inflation, which excludes some of the index’s more volatile components and is the Bank of Canada’s preferred metric for gauging inflationary pressures, increased by just 1.2 per cent year-on-year. The sharp deceleration is not unexpected given that April was the first full month that much of the Canadian economy was ordered to close and the currently weak demand is likely to keep information trending comfortably below the Bank’s 2.0 per cent target for some time yet.
- The national all-items consumer price fell 0.2 per cent year-over-year, a reversal of the 0.9 per cent gain registered in March.
- The underlying weakness in crude oil, brought about by travel bans, drove gasoline prices down 39.3 per cent compared to April 2019. This follows a contraction of 21.2 per cent in March. Energy prices (down 23.7 per cent) in aggregate were down this month. Excluding energy, consumer prices increased 1.6 per cent.
- Other areas of weakness in this month’s reading included transportation (down 4.4 per cent), clothing and footwear (down 4.1 per cent), and recreation (down 0.7 per cent).
- Housing prices are also beginning to show weakness across much of the country, which led to shelter prices slowing to just 1.3 per cent growth in April, down from 1.9 per cent in March, and well below the average gain of 2.5 per cent of the last year.
- Not all prices were down in April. Canadians paid more for food (up 3.4 per cent) amidst supply-chain bottlenecks and a depreciation of the loonie.
- Demand for household cleaning supplies has surged during the pandemic, and that has been reflected in prices. Detergents and soap prices increased 6.4 per cent compared to last year.
- Household paper supplies, which includes toilet paper, increased by 14.2 per cent as families scrambled to stock up as the pandemic hit with full force.
All in all, this month’s reading is very much in line with our expectations. April was the first full month of lockdown for the Canadian economy and the negative economic impacts have been severe. Millions of Canadians have suffered job losses, reductions in hours, and lost income. Demand for most goods is down, and in some cases severely so. Government aid has supported spending on many essential products and services, but discretionary spending is tight for many families. Given that the economy is still months away from full operations, we expect inflation to remain subdued for some time yet.