|There’s been an unexpected hiccup in the Bank of Canada’s ongoing battle against inflation. Year-over-year, price pressures escalated to 4.4% in April, an uptick from the previous month’s 4.3% and significantly exceeding the average economist’s prediction of 4.1%. This marks the first rise in overall inflation from the last June. Ironically, higher interest rates are intended to tackle inflation, but rising rent prices and mortgage interest costs contributed the most to the all-items CPI increase last month.
This sketches an unusual scenario for the Bank of Canada as it approaches its June 7th rate decision. The economy remains resilient, with Canadians grappling with escalated interest rates and continued price pressures. Spring 2023 increasingly looks like the turnaround point for Canada’s housing market after a year-long slump, and labour markets remained firm in April.
To be sure, inflation is down significantly from the 8.1% year-on-year peak experienced last June. The initial reduction in inflation was swift and relatively straightforward, but predictably, the following phase is proving to be considerably more challenging.
The CPI was up 0.7% in April, following a 0.5% gain in March. Gasoline prices (+6.3%) contributed the most to the headline month-over-month movement. Excluding gasoline, the monthly CPI rose 0.5%. On a seasonally adjusted monthly basis, the CPI rose 0.6%.
Gasoline prices rose 6.3% in April compared with March, the most significant monthly increase since October 2022 and contributing the most to the acceleration in the headline CPI. This increase followed an announcement from OPEC+ (countries from the Organization of Petroleum Exporting Countries Plus) to reduce oil output, pushing prices higher. The switch to summer blend and increased carbon levies also boosted prices.
Nevertheless, gas prices were 7.7% lower in April 2023 compared with April 2022, when prices were higher due in part to Russia’s invasion of Ukraine. Compared with 18 months earlier, gasoline prices were 10.0% higher in April 2023.