The annual rate of inflation rose slightly in April as Canadians paid more at the gas pumps, bucking a streak that had seen price pressures easing year over year since the summer in Canada.
The inflation rate was 4.4 per cent last month, up from 4.3 per cent in March, Statistics Canada said Tuesday.
April marked the first month inflation accelerated since June 2022, when the rate hit 8.1 per cent.
Some economists are saying the increase is “just a blip,” while others say the Bank of Canada will be feeling the pressure to raise interest rates again as early as June.
Gas prices up, some relief at the grocery store
Gas prices were 6.3 per cent higher in April than in March, which StatCan says drove the overall acceleration in inflation.
The agency noted that gas prices were still 7.7 per cent lower last month than in April 2022, when Russia‘s invasion of Ukraine disrupted energy markets globally.
Price growth in Alberta, specifically higher electricity prices, also contributed to the pressures, according to Statistics Canada.
Most economists had expected inflation to continue slowing, with Royal Bank of Canada calling for inflation to drop to 4.1 per cent last month.
Grocery prices grew 9.1 per cent last month in aggregate, climbing at a slower pace than the 9.7 per cent seen in March.
There was some relief in the produce aisle as lettuce prices dropped 3.3 per cent from a year earlier; fresh produce prices were up 8.8 per cent, down two percentage points from the annual increase in March. Coffee and tea prices also grew more slowly in April.
Fresh fruit was subject to higher inflation, however, with orange prices in particular up 12 per cent year over year.
Shelter costs were up 4.9 per cent, down from 5.4 per cent in March, though Canadians continue to pay more on their mortgages with interest rates much higher than a year earlier. The mortgage cost index was up 28.5 per cent last month, and Statistics Canada noted that higher rates might be stimulating demand in the rental market, with rents up 6.1 per cent year over year.
Moshe Lander, economics professor at Concordia University, tells Global News the slight uptick in inflation in April is nothing to panic over.
He compares the campaign to tame inflation with efforts to lose weight: it’s not a linear process, and a small increase is nothing out of the ordinary.
“Losing the last few pounds is the hard one. And somewhere in between the first and the last, you have a cheat weekend where maybe things go a little badly for you,” Lander says as a metaphor for inflation.
“This is just a blip. It happens. I don’t think that it’s anything to worry about.”
What will the Bank of Canada do?
The Bank of Canada has held its benchmark interest rate steady in two consecutive decisions as it waits to see the full effect its rate hikes have had on the economy.
The central bank has said this pause is conditional on inflation falling to around three per cent by mid-year.
Lander says he thought the Bank of Canada’s timeline for getting inflation back to the upper bounds of its one-to-three per cent range was a bit “ambitious” when he first heard it, but he also argues it’s not disastrous if the exact timing is off for a few months.
“I don’t think that the Bank of Canada is worried either. They understand that it’s not a linear progression from 8.1 (per cent) down to 2.9 (per cent) and there will be bumps along the way,” he says.
Others are less sure the Bank of Canada is willing to let an inflation surprise pass unchecked.
Tuan Nguyen, economist with RSM Canada, said in a note Tuesday that the central bank is now in a “tough spot” as it gears up for its next rate decision.
“Our base forecast remains no hike in June, yet we would not be surprised if the BoC changes its tone in favour of another hike,” he said.
Money markets moved to price in a 22 per cent chance of a Bank of Canada rate increase at its next policy meeting on June 7, according to Reuters, up from about 10 per cent before the data.
“Markets are still underweighting the possibility of an insurance hike on June 7th, especially in the context of BoC communications that prioritized the upside risks to inflation and expressed worries about core inflation getting stuck above three per cent,” said Jay Zhao-Murray, market analyst at Monex Canada.
Conservative Leader Pierre Poilievre hammered the government over the latest inflation reading in Question Period on Tuesday. He argued that the additional spending announced in the Liberals’ 2023 budget, introduced at the end of March, was “pouring fuel on the fire” of inflation.
Finance Minister Chrystia Freeland disagreed with Poilievre’s assertion that inflation isn’t coming down, pointing instead to the closely watched core measures of underlying inflation, which the Bank of Canada uses to strip out more volatile inputs to the inflation basket, such as gas and food prices.
The average of two of the Bank’s core measures of underlying inflation, CPI-median and CPI-trim, came in at 4.2 per cent compared with 4.5 per cent in March.
“The reality is that inflation is going down,” Freeland said Tuesday.
But experts said that even with the downward trajectory, the Bank of Canada will need to see more progress from these metrics before it can rule out further rate hikes.
“The fact that core measures of inflation remained elevated in April will be disconcerting for policymakers,” said Royce Mendes, head of macro strategy at Desjardins Group. “Expect upcoming communications to remain hawkish and focused on bringing inflation to heel, leaving the door open to further rate increases.”
Bank of Canada governor Tiff Macklem will take questions from the media on Thursday when the central bank unveils its annual financial system review.
— with files from Reuters
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