- Consumer price inflation increased to 6.8% year-on-year (y/y) in April, up from 6.7% in March.
- Food prices were a main driver, with prices rising 9.7% y/y. Statistics Canada noted that “this increase, which exceeded 5% for the fifth month in a row, was the largest increase since September 1981.”
- Shelter also contributed significantly, up 7.4% y/y. It was referenced that “higher prices for energy sources used to heat homes, such as natural gas (+22.2%) and fuel oil and other fuels (+64.4%), contributed to the increase.” Furthermore, “homeowners’ replacement cost (+13.0%) which is related to the price of new homes, and other owned accommodation expenses (+17.2%) which includes commissions on the sale of real estate, both increased in April.”
- Prices at the pump dropped a touch in April, down 0.7% month-on-month, after a double-digit gain in March. This follows a modest drop in global energy prices.
- Seasonally adjusted, month-on-month prices were up 0.7% following a 1% gain in March. Excluding food and energy, the index was up 0.5%, down from 0.7% in March.
- All three of the Bank of Canada’s core inflation metrics picked up steam in April. CPI-trim rose 0.3 percentage points (pp) to 5.1%, CPI-common by 0.2pp to 3.2%, and CPI-median by 0.4pp to 4.4%.
Key Implications
- The cost of basic necessities continues to push higher in Canada, with food and shelter driving the price increases. We are not expecting much of a reprieve going forward, with food supplies likely remaining tight. On the shelter side, we are likely to see a continuation of rent price increases alongside rising mortgage interest costs. This will be balanced against the impact of declining house prices. Furthermore, energy prices at gas stations may have taken a breather in March, but anyone who has filled up their tank over the last couple of weeks knows that an acceleration of prices will show up in next month’s CPI print.
- All of this re-enforces the view that the Bank of Canada will hike by another 50 basis points (bps) on June 1st, followed by another 50 bps in July. Bond yields in Canada increased following this morning’s data release, with most of the curve converging around the 3% level.
