Consumer Prices in Canada Rise Fastest in Ten Years | New
Consumer prices in Canada have climbed at the fastest rate in a decade, beating estimates and potentially fueling concerns that the country – much of which is still stranded – is entering a period of persistent inflation.
Annual inflation accelerated to 3.4% in April, from 2.2% in March, Statistics Canada reported in Ottawa on Wednesday. This exceeded economists’ forecasts by an annual rate of 3.2%. On a monthly basis, inflation rose 0.5% from the 0.2% expected by economists.
The annual reading – the highest since May 2011 – may raise concerns that price pressures are stronger than expected by the Bank of Canada, which has warned of overreacting to a spike in inflation that it says it will only be transitory. If inflation turns out to be more sustainable, however, it could force the central bank to anticipate interest rate hikes that investors don’t anticipate until later next year.
Core inflation – often seen as a better measure of underlying price pressures – fell from 1.9% in March to 2.1%. This is the highest since 2012.
Higher gasoline prices contributed the most to the rise in annual inflation. They were up 62.5% in April from the same time last year, when prices plunged to an 11-year low in the first weeks of the pandemic, according to the report. On a monthly basis, housing prices contributed the most to the increase due to rising construction costs and strong demand for single-family homes.
The annual reading of the Consumer Price Index is skewed because the one-year period used as a comparison coincided with a general decline in demand and prices at the start of the Covid-19 pandemic, a phenomenon known as the baseline effect.
A similar phenomenon also pushed up inflation in the United States last month at an annual rate of 4.2%. Unlike the United States, inflation in Canada could rise at a slower rate as much of the country was still in some form of Covid-related shutdown last month, delaying demand for goods and services . Recent gains in the Canadian dollar may also have eased inflationary pressures.
âBase effects and rising commodity prices have done most of the damage, as seen in the US CPI release last week, although this was also boosted by the reopening of the ‘US economy,’ Simon Harvey, senior currency analyst at Monex Canada, said via email.
The Canadian dollar fell after the report, trading 0.3% at C $ 1.2101 per US dollar at 9:01 am in Toronto. Five-year Canadian government bond yields were little changed at 0.95%.
Bank of Canada Governor Tiff Macklem had predicted that inflation would rise to around 3% due to these base effects, but he also said he believed underlying price pressures remained depressed. due to the continued weakness of the economy. In its latest forecast released last month, the central bank forecast an average inflation of 2.9% in the second quarter before coming back close to its target of 2% by the end of the year.
âBoC members have already said they will look at the near-term breach of inflation, which means there is a high bar for the CPI to clear before markets start speculating in changing expectations for standardization, âHarvey said.