Inflation’s Deceleration in April Bodes Well for Imminent Rate Cut

  • In April, the Consumer Price Index (CPI) rose by 2.7 per cent (y/y). This was lower than March’s 2.9 per cent (y/y) increase.
  • Gasoline prices rose by 7.9 per cent (m/m) and were 6.1 per cent higher than a year ago. Year-over-year, food prices increased in stores (+1.4 per cent) and restaurants (+4.3 per cent).
  • Core CPI (excluding food and energy) grew by 2.7 per cent in April (y/y), which was lower than the 2.9 per cent increase (y/y) in March. Several shelter components were key contributors to overall CPI growth.
  • On a seasonally adjusted monthly basis, the CPI rose by 0.2 per cent in April (following a 0.3 per cent gain in March).
  • The average of the Bank of Canada’s three core inflation measures fell to 2.7 per cent in April. CPI-common fell to 2.6 per cent, CPI-median dropped to 2.6 per cent, and CPI-trim decelerated to 2.9 per cent.

Key insights

  • April’s CPI figures were broadly positive despite the recent acceleration of gasoline prices. The rampant pace of food price growth appears to be tamed, as prices for food sold in stores grew by only 1.4 per cent year-over-year. However, gasoline price growth accelerated which added some inflationary pressure in April. Excluding gasoline, the consumer price index grew by a milder 2.5 per cent (y/y). While the pace of price growth for the CPI as a whole continues to trend down, prices for some services in the consumer basket are still growing swiftly. Shelter price growth inched down to 6.4 per cent (y/y) in April from 6.5 per cent in March. The strong growth of rent and mortgage interest costs is likely weighing on consumer sentiment. Following modest gains throughout the first quarter of 2024, our Index of Consumer Confidence declined sharply in April.
  • Inflation still sits prominently in the public’s consciousness. Consumer expectations for inflation a year out remain perched at more than twice their pre-pandemic range. When price growth is stable, it typically has a muted influence over consumer and business decision-making. Over the last few years, however, its influence has been more glaring. Although inflation is moderating, consumers are still adjusting to higher price levels, and they remain sensitive to anomalous price changes for particular items. The skyrocketing price of olive oil, for example, has recently drawn the public’s ire (though it can be traced largely to poor harvests for the past three years). Ultimately, high inflation expectations can translate into higher wage demands which can make the task of taming inflation a little trickier.
  • April’s CPI report adds weight to the thesis that interest rate cuts will begin in June. In their last monetary policy announcement, the Bank of Canada’s Governing Council highlighted the need to see further evidence that core inflation was decelerating before they would consider cutting rates. April’s CPI figures were another positive step in that direction, as both CPI-trim and CPI-median declined. Strong employment growth reported in April could sway the Bank of Canada’s decision making but the unemployment rate is higher than at the same time a year ago. Wage growth also showed modest signs of deceleration. On balance, signs suggest that June remains “within the realm of possibilities” for the Bank’s first rate cut.

For more details about our inflation forecast and inflation’s impact on the Canadian economy, please consult our Canadian Five-Year Outlook.