- The Consumer Price Index (CPI) jumped to 3.4% year-on-year (y/y) in April, up over a percentage point from 2.2% in March, and above of the median forecast for 3.2%.
- Gasoline prices were a big part of the year-on-year gain, up 62.5% from their lows in April 2020. Other energy prices were also higher relative to a year ago.
- Excluding energy, inflation would have been softer at 1.6% (still up from 1.1% in March). Clothing and footwear saw the first year-on-year gain since March 2020, jumping to positive 1.8% y/y from -5.4% in March. Food price growth, on the other hand, slowed in April to 0.9% (from 1.8% in March).
- Seasonally adjusted, the price index rose a strong 0.6% month-on-month, accelerating from 0.1% in March. Price growth was strong among most major categories, led by the recreation, education and reading category, which rose 1.4% and health and personal care, which was up 1.3%. Furnishings and equipment rose 0.8%, shelter was up 0.5%, as was clothing and footwear.
- The Bank of Canada’s core inflation measures all ticked up in April, CPI-common rose to 1.7% (from 1.5%), CPI-median and CPI-trim both rose to 2.3% (from 2.1%) in April.
Key Implications
- With the economy still getting over the coronavirus pandemic, the aftermath of the virus and the policy response to it are beginning to come into view. The jump in prices reflects both the plunge a year ago and the recovery from it in the year hence. In April, there were also more clear signs of recovery in the most deeply impacted sectors like travel, healthcare (dental especially) and clothing. Price pressures are likely to continue to percolate as demand accelerates and supply takes time to catch up.
- Some of the attention on inflation is due to the even bigger jump observed in the United States. The dynamics in Canada, while sharing several features with the U.S. also have some important differences. For one, the loonie has been rising against the greenback and other currencies like the pound and the euro. A rising Canadian dollar lowers the costs of imports and offsets some of the inflationary pressures. For two, (and contributing to the first point), the Bank of Canada has been more cautious in its forward guidance, moving its expectations ahead for when the economy will reach its potential and hence for when policy should become less accommodative. As a result, inflation risks, while still well worth watching, are not as pronounced as they are stateside.
