Canada’s annual inflation rate hit its highest level in nearly a decade last month, as the rebound in gasoline prices has been compared to initial pandemic lows, and a wide range of prices consumption has increased even though a large part of the economy has remained blocked.
The consumer price index rose 3.4% in April from the previous year, from 2.2% in March, Statistics Canada reported on Wednesday. Inflation rose 0.6 percent on a monthly basis.
Economists expected a surge in the headline inflation rate, which is calculated on an annual basis. This is largely explained by a record 62.5% rise in gasoline prices from last April, when demand collapsed in the first wave of the pandemic. The “base year” effect of gasoline prices on the CPI will be temporary, Statscan said.
What surprised observers, however, was the magnitude of the monthly increase in the CPI, which is not explained by the effects of the base year.
“The surge in headline inflation shouldn’t come as a shock to anyone,” wrote Benjamin Reitzes, head of Canadian rates and macro strategist at BMO Capital Markets.
“However, the extent of the strength of the CPI this month, when much of the country was in lockdown or under tightening restrictions, is notable. Many sectors reporting gains are unlikely to be replicable, but that doesn’t mean these types of increases won’t be visible elsewhere, especially when the economy reopens, ”he wrote.
Shelter, clothing, and health and personal care products all saw noticeable price increases. The housing component of the index rose 3.2%, due to a 9.1% increase in the Homeowners Replacement Cost Index, which tracks the price of new homes, including costs. wood. Excluding energy prices, the CPI rose 1.6% year over year.
The latest Canadian data came out a week after the United States reported CPI growth of 4.2% in April. Inflation figures in the United States rocked the markets and fueled growing fears that high inflation could be prolonged as the economy reopens and consumer demand outstrips supply. Recent problems with supply chain bottlenecks and shortages of essential manufacturing inputs such as semiconductors have heightened fears of inflation.
Royce Mendes, senior economist at CIBC Capital Markets, said Canada is likely to experience considerable volatility in inflation numbers in the coming months, “particularly if the Canadian economy is under price pressure during its downturn. reopening similar to those in the United States ”.
“However, it is still likely that all of this will end up being transitory, and the Bank of Canada can stick to its plan to keep rates on hold until the second half of 2022,” he wrote. in a note.
The Bank of Canada, for its part, has always maintained that the short-term surge in inflation would be temporary. At a press conference last week, a day after the release of US inflation figures, Bank of Canada Governor Tiff Macklem reaffirmed that inflation would rise to around 3% in the months to come, before dropping towards the 2% of the bank. target later in the year.
“Much of our economy remains very weak. There are far too many unemployed Canadians, and that puts downward pressure on inflation, ”Macklem said.
The central bank typically “examines” short-term inflation peaks for the purpose of conducting monetary policy. But it becomes more difficult for the bank to control the inflation rhetoric when the CPI breaks the top of its target range of 1-3%.
” The [bank’s] a clear pandemic-era emphasis on not backing down until we have an inclusive 110% recovery, because we will not achieve sustainable inflation until this point is tested by lingering benefits of tracking inflation over what they thought when all these stimulus measures were first put in place, ”wrote Derek Holt, head of financial markets economics at the Bank of Nova Scotia.
The average of the three measures of core inflation favored by the Bank of Canada rose to 2.1% in April, the highest value since 2012.
Your time is precious. Get the Top Business Headlines newsletter delivered to your inbox in the morning or evening. register today.