Headline CPI inflation edged lower in April to 2.7% year-on-year (y/y), matching expectations. The broad-based deceleration was led by food prices, services and durable goods.
However, higher prices at the pump in April worked against the cooling in inflation. Gasoline prices were up 6.1% versus a year ago, up from 4.5% in March. But it wasn’t entirely due to the increase in the federal carbon levy. Statistics Canada cited that higher oil prices and the switch to summer blends were also factors lifting prices at the pump. Excluding gasoline, all-items CPI slowed to 2.5% y/y in April, down from 2.8% in March.
Goods inflation as a whole continued to slow, up only 1% y/y in April, as prices for durable goods (like furniture and appliances) are in deflation, down 0.8% y/y. Consumers are also seeing lower inflation for food, which is at 2.3% y/y in April, down from a peak of 10% last year.
Shelter inflation has been a thorn in the Bank of Canada’s side, but it took a small step in the right direction in April, up 6.4% y/y, down a tenth from March. Rent inflation cooled slightly to 8.2% y/y as did mortgage interest costs, which remain high at 24.5% y/y. Leaning against these increases, homeowner’s replacement cost is down 0.9% versus a year ago. CPI ex-shelter was up only 1.2% y/y on April.
In other good news, the Bank of Canada’s preferred “core” inflation measures continued to make progress towards the 2% target in April. The average of the Bank’s median and trim measures was 2.8% y/y in April, down from 3.1% in March. The three and six month annualized pace of core inflation – at 1.6% and 2.4% – continue to point to a lower year-on-year pace of price growth going forward.
Key Implications
April was another month of good news on Canadian inflation. The BoC’s preferred inflation gauges moved into the 1-3% target range for the first time in nearly three years. However, at 2.8% it is still close to the top of the BoC’s range, and we expect the bank will want to see a bit more confirmation before taking rates lower and lean towards a July cut.
However, markets have found today’s inflation number a bit more reassuring, and have increased the odds of a June cut to better than 50-50. But June or July, Canadians can be increasingly confident that alongside lower inflation, interest rates are headed lower soon.
