Headline CPI inflation jumped up to 2.8% year-on-year (y/y) in April, from 2.4% in March, slightly below consensus expectations. Higher gasoline prices were a big part of the story, with inflation ex-gasoline up a more modest 2.0% y/y.
Prices at the pump were up 28.6% y/y in April. Energy prices as a whole were 19.2% higher versus a year ago, the fastest pace since 2022. Surprisingly, food inflation cooled to 3.5% y/y in April, down from 4% y/y in March.
Inflation for various categories was a mixed bag. Shelter inflation picked up slightly, rising 1.8% y/y in April up from 1.7% y/y in March. However, this was driven by rising utility costs: water, fuel and electricity rose 5.5% y/y, up from basically flat prior to the oil shock. Overall services inflation cooled further to 1.7% y/y down from 2.6% y/y in March. Core goods inflation picked up to 1.6% y/y from 0.9% y/y in April. Clothing inflation picked up in April, rising 2% y/y from being down 0.4% y/y in March.
Higher energy costs have not yet filtered through to core inflation. In fact, core inflation cooled in April! The Bank of Canada’s official core inflation metrics (median and trim), averaged 2.1% y/y in April, down from 2.3% in March.
Key Implications
As expected, higher oil prices lifted Canadian inflation in April, but we are not yet seeing much of a knock-on effect to non-energy related goods or services. Core inflation pressures were actually softer than expected in April. There is little argument yet for Bank of Canada rate hikes here, and market pricing for rate hikes this year has come down a bit this morning.
Oil prices have remained high in May, so energy prices are likely to keep headline inflation elevated for some time. Given a generally soft economic backdrop in Canada, we expect the effect on core prices should be more modest. Core inflation is expected to stay reasonably close to the 2% target on a year-on-year basis this year (see details in today’s report).
