Inflation in Canada

Canada - Inflation

Inflation hits the midpoint of the Central Bank’s target range in April

Consumer prices increased a seasonally-adjusted 0.3% from a month earlier in April, down from March’s revised 0.4% rise (previously reported: +0.3% month-on-month). According to Statistics Canada, the uptick was mostly driven by higher prices for transportation due to a jump in gasoline prices.

Inflation notched up to 2.0% in April (March: 1.9%), as analysts had projected, and hit the midpoint of the Central Bank’s target range of 1.0% to 3.0%. Meanwhile, annual average inflation edged lower to 2.1% in April, down from the 2.2% registered in March. Core inflation, which excludes volatile items such as fuels and fresh produce, inched up to 2.0% in April (March: 1.9%).

A carbon tax, which was introduced by the federal government in April, was chiefly behind this month’s inflation uptick and should keep prices elevated in the near-term. Moreover, a tight labor market following April’s solid job creation and robust wage growth will likely add further upward price pressures going forward.

Providing a short-term outlook on inflation, Avery Shenfeld, chief economist at CIBC World Markets, noted:

“Inflation in Canada is just a steady as she goes story, and she goes right in line with the Bank of Canada’s target. That's true for the headline 2.0% rate, and nearly so for the three core measures that average only a tick lower at 1.9%. There's nothing for markets to really chew on today, with the date essentially bang on expectations, and with the headline figure only a tick higher than the prior month and showing no obvious trend. Ex-gasoline inflation is at 2.3%, underscoring our view that in upcoming quarters we're likely to see a period in which inflation runs above 2% for a while when we move past year-on-year declines in pump prices.”

In its April monetary policy report, the Bank of Canada projected inflation averaging 1.9% in 2019 and 2.0% in 2020. FocusEconomics Consensus Forecast analysts, meanwhile, see inflation averaging 1.8% in 2019, which is unchanged from the previous forecast. For 2020, our panelists see inflation averaging 2.0%. A new FocusEconomics Consensus Forecast will be published 28 May.