Canada’s inflation surprises: What economists say

Article content

Inflation surprised economists in April, accelerating to 4.4 percent from a year ago, instead of the expected 4.1 percent.

Article content

He said this is the first time that the headline consumer price index (CPI) has increased since June 2022 Statistics Canada in its release On May 16th.

Article content

National data attributed most of the increase to higher rents and the higher cost of mortgages, which rose 28.5 percent from a year ago as homeowners renewed at higher rates.

StatsCan said higher gasoline prices, which rose 6.3 percent, also played a role in inflation rising 0.7 percent in April from March.

The April CPI numbers are the last batch of “high impact” data ahead of the upcoming Bank of Canada interest rate meeting on June 7th.

This uptick in inflation, the better-than-expected April jobs report, and the pickup in the housing market suggest that the economy is heating up again despite the central bank’s efforts to cool it down.

Article content

Article content

Governor Tiff Macklem said in a speech in early May that he was prepared to raise interest rates further if inflation remains stuck above the 2 percent target.

Here’s what economists are saying about the latest inflation numbers and what they mean for the Bank of Canada and interest rates.

Charles Saint Arnaud, Alberta Central

It is clear that inflation has peaked but there are signs that the pace of moderation may be slowing. Moreover, it remains well above the Bank of Canada’s 2 percent target, inflation expectations are high, and inflationary pressures remain broad-based and likely to be steady. The Bank of Canada may find the recent inflationary dynamic, as measured by the three-month annual changes, a little worrying, but it continues to support the Bank of Canada’s position that it will leave its policy rate unchanged at 4.5 percent for the rest of the year.”

Article content

Claire Vann and Abby Shaw, RBC

Inflation in Canada accelerated in April, but remains steadily declining since peaking in the summer of 2022. Early signs that the lagging effect of higher interest rates is weighing on economic growth suggests that underlying price pressures should continue to ease. The Bank of Canada is expected to remain on the sidelines for the remainder of the year.”

Jay Chau Murray, coin dealer, Monex Canada

“As the Bank’s recent communications have focused so clearly on the upside risks to inflation, expressed concerns that core inflation could become stuck above 3%, and left the door open for future hikes if the data warrants, we believe markets are underestimating additional insurance surge risks. on June 7. Right now, the odds of an insurance increase in the market are currently 34 percent, having re-quoted from 17 percent just prior to the report. The CPI report compounds today, which was the last bit of high-impact data ahead of the decision. Next Bank of Canada, the evidence we received earlier this month to indicate that the Canadian economy is recovering.For example, job growth was twice as strong as economists expected, while the housing market appears to have bottomed out, with housing construction picking up, building permits, home prices, and sales volumes.”

Article content

Leslie Preston, TD Economics

Headline inflation took a break on its journey down the mountain in April thanks to higher gasoline prices. We expect the pause to be temporary and that inflation will resume its downward trend in the coming months. As shown in our March outlook, we expect core inflation to continue to slow to below 3% y/y in the second half of the year, as does the BoC.

“Cooler demand-sensitive service inflation, or ‘supercore'” was the most encouraging development in the report, although it was offset to some extent by higher commodity inflation. inflation to 2 per cent. This suggests that the Bank of Canada needs to remain vigilant to inflation pressures, and may need to raise again if momentum in the domestic economy does not abate as expected.”

Article content

Mathieu Arsenault and Alexandra Ducharme, National Bank of Canada

While the April data is disappointing, there is still good news for the coming months. Gasoline prices have been declining so far in May, which should contribute to significant moderation in annual inflation. In fact, the months of high inflation that followed the start of the war in Ukraine will continue to be written off from the accounts, and the negative fundamental effect from annual changes will disappear. While this morning’s numbers are likely to put the central bank on guard, that does not mean that rate hikes should resume immediately. Under our current inflation projections, real interest rates will be above 1 percent in June, the most restrictive in 15 years. Such a restrictive monetary policy should be enough to significantly cool the Canadian economy in the coming quarters and, as a result, dampen inflation.”

• Email: gmvsuhanic@postmedia.com | Twitter: GSuhanic