Consumer price inflation surprised in April, ticking up to 4.4% year-on-year (y/y), from 4.3% in March. That was against market expectations for a slight deceleration.
Prices at the pump were a key part of the surprise, rising 6.3% on the month. Even with that steep monthly increase, gasoline prices were 7.7% below year ago levels when oil prices spiked in the early days of Russia’s invasion of Ukraine.
Consumers did get some good news on their grocery bills, as inflation there cooled to 9.1% y/y in April from 9.7% in March.
Thankfully, shelter inflation moved in the right direction in April, up 4.9% y/y, down from 5.4% y/y in March. Homeowners’ replacement costs continued to slow to 0.2% y/y in April reflecting a general cooling in the housing market. However, mortgage interest cost inflation keeps getting worse – up 28.5% versus a year ago in April.
Switching gears from March, core goods inflation ticked up a bit to 3.5% y/y in April from 3.3% in March. However, the good news is that “supercore” inflation – a measure of core services inflation – decelerated to 5.7% in April from 6.3% in March.
The Bank of Canada’s underlying inflation pressures cooled modestly in April. CPI-trim eased to 4.2% y/y (4.4% in Mar.) and CPI-median at 4.2% y/y (4.5% in Mar.). However, looking at the recent monthly trends, there has been a slight heating up recently with CPI- trim on a three-month annualized basis at 3.7% and median at 3.8%, up from 3.3% and 3.6% in March.
Key Implications
Headline inflation took a breather on it’s trek down the mountain in April thanks to surging gasoline prices. We expect the pause will be temporary and inflation will resume heading lower in the months ahead. As outlined in our March forecast, we expect core inflation to continue to decelerate below 3% y/y in the second half of the year, as does the Bank of Canada.
Cooler inflation for demand-sensitive services inflation, or “supercore” was the most encouraging development of the report, even though it was somewhat offset by hotter inflation for goods. This reinforces the challenge Governor Macklem has talked about in bringing inflation all the way back to 2%. This suggests that the BoC needs to remain vigilant to inflation pressures, and may need to hike again if momentum in the domestic economy does not cool as expected.
