After a five-month decline, Canada’s headline inflation rate increased in April.
The consumer price index increased slightly from the 4.3% growth seen in March to 4.4% in April, according to the most recent statistics from Statistics Canada.
Rent rises (+6.1% year over year), petrol price increases (+6%), and mortgage interest rate increases (+28.5%) all contributed to the acceleration. Since June 2022, it was the first month over month increase in inflation. The largest driver of headline CPI growth in the month, accounting for a third of overall growth, was rising shelter expenses (+4.9%).
A sub-component of total inflation readings, mortgage interest costs increased at an annual rate of 28.5% in April, according to StatCan, “as more mortgages were initiated or renewed at higher interest rates.”
There is still room for more rate increases.
The Bank of Canada could raise interest rates again, according to Marc Desormeaux, Principal Economist at Desjardins. The labour market is still strong, and price re-acceleration suggests that the economy is still out of balance, he continued. “We still believe that slowing economic growth will eventually contribute to bringing inflation under control, but today’s data indicate that the process may take longer than initially anticipated.”
In a speech earlier this month, the governor of the Bank of Canada reaffirmed that the bank’s work wouldn’t be finished until inflation reached 2%. “We are prepared to raise rates further,” he said, “if we start to see signs that inflation is likely to get stuck materially above our 2% target.”
According to Robert Kavcic, senior economist at BMO, despite core inflation’s positive trend, there are indications that it is “settling in” around 4%, which is “clearly too high” for the Bank of Canada.
“Since policy rates are still at 4.5 percent, real overnight interest rates are marginally positive. The ‘fundamental’ question, though, is: Is it close enough?,” he wrote. Maybe, but the BoC and I will be keeping an eye on how the job market and some of the more interest-sensitive industries change over the coming months. Others concur that as the full effects of the Bank of Canada’s rate hikes are still being felt throughout the economy, more time is needed to observe the evolving trends.
Despite picking up in April, inflation has been “on balance” since peaking at 8.1% in last June, according to RBC economists Claire Fan and Abbey Xu.
Early indications that rising interest rates are having a negative effect on economic growth imply that underlying price pressures should continue to subside, they concluded. “The BoC is anticipated to sit out the remainder of the year.”
