Canadian Inflation Holds Steady But Core Rate Drifts Down

  • April CPI numbers bolster Poloz’s concern about the economy
  • BMO sees data as ‘ace in the hole’ for standing pat on rates

Canadian Inflation Holds Steady But Core Rate Drifts Down

Canadian inflation pressures remained subdued in April, even with a sharp increase in gasoline prices. Measures of annual core inflation fell, underlining Bank of Canada Governor Stephen Poloz’s concern that excess slack remains in the economy.

The average of the central bank’s three core inflation measures -- which exclude volatile items like energy and are considered a better indicator of trends in prices -- declined to 1.4 percent, Statistics Canada said Friday from Ottawa, down from a March average of 1.5 percent.

Key Points

  • The consumer price index rose 1.6 percent in April from a year ago, unchanged from the previous month. Economists surveyed by Bloomberg had forecast the index would rise 1.7 percent on the back of higher gasoline prices.
  • Prices rose 0.4 percent on a monthly basis, lagging the 0.5 percent median economist forecast.
  • The Bank of Canada’s “common” core rate was 1.3 percent in April, the “median” core rate was 1.6 percent and the “trim” measure was 1.3 percent.

Big Picture

Central bank policy makers have been citing weakening core inflation figures, along with slow wage growth, as evidence that slack remains in the nation’s economy. Lack of inflation pressures is one of the main reasons why the Bank of Canada, which has a mandate to target a 2 percent inflation rate, isn’t expected to match interest rate increases this year by the Federal Reserve.

Analyst Reaction

David Madani, senior Canada economist at Capital Economics: “All things considered, spare capacity in the economy and muted wage cost pressures will keep core inflation below the 2 percent inflation target over the remainder of this year. On that basis, we would certainly expect the Bank of Canada to remain focused on the greater downside risks to the inflation outlook.”

Doug Porter, chief economist at Bank of Montreal: “Despite the many growing arguments for the Bank to turn more hawkish -- solid GDP growth, a falling jobless rate, a hot Ontario housing market -- subdued core inflation is their ace in the hole, arguing for a stand-pat stance.”

Other Details

  • On a seasonally adjusted basis, consumer prices rose 0.5 percent in the month of April. Excluding food and energy, seasonally adjusted prices were up 0.1 percent.
  • Gasoline prices rose 9.5 percent in April, with Statistics Canada citing supply disruptions at oil refineries. Year-over-year, gasoline prices posted a 15.9 percent increase.
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