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No Signs of Slowing: Year-Over-Year CPI Growth Rises to 6.8 Per Cent in April

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  • In April, the Consumer Price Index (CPI) rose by 6.8 per cent (y/y).
  • Gasoline prices fell by 0.7 per cent (m/m) but were 36.3 per cent higher than a year ago. Year-over-year food prices also increased, both in stores (+9.7 per cent) and restaurants (+6.6 per cent).
  • Excluding food and energy, the CPI climbed by 4.6 per cent in April. Year-over-year and month-over-month prices were higher in all eight major CPI components. Rising prices in many shelter, food, and transportation subcategories remain key contributors to overall CPI growth.
  • On a seasonally adjusted monthly basis, the CPI went up 0.7 per cent in April, which was lower than the increase of 1.0 per cent in March.
  • The average of the Bank of Canada’s three core inflation measures bumped up to 4.2 per cent in April from 3.9 per cent in March. CPI-trim increased to 5.1 per cent, CPI-median grew to 4.4 per cent, and CPI-common moved up to 3.2 per cent.

Key Insights:

  • Headline inflation figures will likely ease as “base effects” wane this year. Year-over-year inflation slipped outside of the Bank of Canada’s 1 per cent to 3 per cent range in April last year, when it reached 3.4 per cent. As inflation has only continued to grow since then, the year-over-year comparisons to last year’s high inflation months will be less extreme. However, monthly price growth is likely to remain strong.
  • The Bank of Canada has made it clear that higher interest rates are coming. The Bank raised its overnight rate by 0.5 percentage points in April and has signalled that another 0.5 percentage point increase is likely in store for June. That would bring the overnight rate to 1.50 per cent, raising the rate rapidly closer to the highest it’s been over the past decade (1.75 per cent rate in March 2020) . As monetary policy tightens, demand will cool and pressure on price growth will ease. But that process will take time, and as demand cools, will the economy catch a cold? Our latest forecast does not call for a recession, though the Bank will have to tread a narrow path to contain inflation without triggering a pullback in output . With the ratio of credit market debt to disposable income currently at all time highs, higher interest rates will put pressure on the finances of the many Canadians who have increased their borrowing during the past two years. That leaves less room for spending as more income is funneled into interest payments.
  • Global factors inflating prices in Canada are largely out of the Bank’s control. Supply-chain woes, a persistent story of the past two years, have been worsened again by recent outbreaks of COVID-19 and ensuing lockdowns in China. And Russia’s war in Ukraine has kept global energy and food prices sky-high. Amid concerns over food security, India recently banned exports of wheat, resulting in record prices for the staple crop.

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Sean Adams

Sean Adams

Economist

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