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Volatile oil prices push inflation to 10-year high

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The Conference Board of Canada’s economist Anna Feng offers the following insights on the April Consumer Price Index (CPI).

Inflation spiked to 3.4 per cent in April, due mainly to a rebound in oil prices in the past 12 months as well as the surge in new home prices. We expect that inflation will remain hot in May given the plunge in prices that occurred in the early stage of the pandemic last year. A recovery in global demand for resources and strengthening consumer spending at home, will be the main contributors to inflation going forward.


  • The Consumer Price Index soared in April to 3.4 per cent above its level in April 2020, the highest year-over-year growth in the past decade. Much of the increase is attributed to “base-year effects,” meaning that prices today are compared to prices that declined sharply during the first wave of the pandemic in March and April of 2020.
  • The volatility in oil prices within the past year was the main contributor to the spike in April’s inflation figure. In April 2020, the price of gasoline dropped to its lowest level since December 2008.
  • Thanks to oil production cuts by OPEC and the gradual recovery in global oil demand, gasoline prices have fully recovered and almost reached the peak in 2019. The difference in prices in the past 12 months contributed to a record 62.5 per cent surge in gasoline prices in April.
  • Excluding the impact of energy prices, CPI rose 1.6 per cent in April, roughly in line with its average year-over-year growth in the past 10 years.
  • The homeowners’ replacement cost index—an index that incorporates changes in housing prices—is another main upward contributor (up 9.1 per cent) for the strong inflation last month. Higher lumber prices, coupled with rising housing demand, have been driving up housing prices since last fall.
  • Prices rose in all eight major components of the CPI basket in April. Transportation prices logged the highest year-over-year growth (up 9.4 per cent), while the growth rate of prices for household operations, furnishings and equipment was the lowest (up 0.4 per cent).
  • The average of the Bank of Canada’s three core inflation measurements ticked up 2.1 per cent in April. This was the first-time core inflation sat above the Bank’s 2.0 per cent target since February 2012.
  • Overall, April’s inflation readings reflected strong growth in consumer prices, even after excluding the volatility in energy prices.
  • Given the muted consumer prices in May 2020 and its strong recovery since then, especially in the first four months of this year, inflation is likely to move higher in May 2021.
  • Going forward, the year-over-year growth of gasoline prices will ease and have less of an impact on inflation, but a recovery in consumer demand and rising supply costs due to low inventory will likely become the main driver for the growth of prices.

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Anna Feng

Anna Feng


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