Canada: Consumer prices year-on-year fall for the first time since September 2009 in April
May 20, 2020
Consumer prices decreased 0.7% from a month earlier on a seasonally-adjusted basis in April, softer than the 0.9% dip in March. According to Statistics Canada, plunging transportation prices and clothing and footwear costs drove the month-on-month decline in April.
Consumer prices in annual terms fell 0.2% in April (March: +0.9%) on a sharp fall in gasoline prices—which plummeted an eye popping 39.3%. The reading was lower than market analysts’ expectations of a 0.1% fall, and needless to say well below the Central Bank’s 1.0%–3.0% target range. Meanwhile, annual average inflation ticked down to 1.8% in April from 2.0% the month prior.
April’s reading was also muddled by a sharp rise in food and shelter prices and would have likely fell further but the pandemic likely sparked some product shortages due to disruptions in global supply chains as well as panic buying—both which should ease going forward.
Looking ahead, there is little evidence to support deflationary pressures on a large scale as price declines were mostly concentrated in a few sectors of the economy. Deflationary pressures far-flung would likely have a long-lasting negative impact on the economy, particularly when it comes to the country’s elevated household debt levels. Deflation would raise the real value of debt, and consequently weigh heavily on private consumption and could lead to a spike in delinquency rates—a key concern for the Bank of Canada. Nevertheless, economic activity is gradually normalizing and prices should begin to pick up again in the coming months.
Author: Steven Burke, Economist