Annual inflation cools to 2.2%, just above Bank of Canada midpoint

By Andy Blatchford   

Economy Industry Manufacturing 3D manufacturing bank of canada Economy inflation poloz Statistics Canada

Statistics Canada says core measure above 2% for first time in six years.

OTTAWA — Higher pump prices helped the annual inflation rate stay in the upper half of the central bank’s target range last month – but even without pricier gas, underlying inflation managed to reach its strongest pace in six years, Statistics Canada said.

Overall, the annual inflation rate cooled slightly in April to 2.2% to remain just above the 2% midpoint of the Bank of Canada’s range. The latest number was a touch below the March figure of 2.3%, which was inflation’s highest year-over-year reading since 2014.

Beyond gas, pricier air transportation and restaurants applied upward pressure on inflation in April. The biggest downward forces came from the cheaper costs of digital equipment, travel tours and natural gas.

The underlying or core prices, meanwhile, continued their steady, gradual climb last month.


The average of the Bank of Canada’s three measures of core inflation, which omits more-volatile items like gas prices, edged above the two per cent mark last month for the first time since February 2012. The core average for April was 2.03%, up from 1.97% the previous month.

Inflation figures are important for the Bank of Canada, which scrutinizes them ahead of its interest-rate decisions. It can use rate hikes as a tool to help prevent inflation from climbing too high.

But despite the strength of the recent readings, they are unlikely to have a major impact on an upcoming rate decision because governor Stephen Poloz has predicted inflation to remain above 2% for all of 2018.

Last month, Poloz challenged the notion that the 2% midpoint represented some unbreachable barrier. With higher energy prices, he said it’s natural for the long-term trend line to balance itself out – and he called it a “positive thing.”

“What I don’t want is for people to spend this entire year asking what I’m up to because inflation is above target,” Poloz told reporters during a late-April visit to Washington, DC.

“You need every once in a while to remind people there’s a range, and that’s okay. The policy allows for this. We’re not violating our target in some way.”

The bank’s inflation target range is one to three per cent, but considerable attention is focused on where the rate sits relative to the 2% midpoint.

Last month, the central bank raised its inflation projections as it pointed to the temporary effects of higher gasoline prices and minimum wage increases. The bank is now expecting inflation to average 2.3% this year before settling back down to 2.1% in 2019.

Poloz has raised the central bank’s benchmark interest rate three times since last July and is expected to remain on his rate-hiking path with the economy operating close to its capacity.

But last month the bank left its key rate at 1.25%, where it has been since January. At the time, Poloz said the economy was unable to maintain its pace without the stimulative power of lower rates, despite recent improvements.

The central bank’s next rate decision is May 30. But many experts believe the inflation figures, which were slightly below economists’ expectations, reinforced the widely held view that Poloz will wait until July before introducing another rate increase.

BMO chief economist Douglas Porter is among those who believe the central bank won’t hike before July, however, he noted the gradual, upward movement of core inflation is a key indicator to keep an eye on.

“We are seeing a bit of an upward drift in underlying inflation,” Porter said.

“I don’t think the bank is overly concerned about that because … we’ve been below target for so long that a slight, high-side move is really not that much of an issue. I think the key here is to make sure it doesn’t keep grinding higher in the months and years ahead.”

In a separate report, Statistics Canada released its latest figures for retail trade, which showed an increase for a third-straight month with sales rising 0.6% in March to a total of $50.2 billion.

Retail trade also saw increases of 0.5% in February and 0.3 per cent in January.

The report said higher sales in March for vehicles and automotive parts – especially by new car dealers – more than offset weaker sales at food and beverage stores and gas stations. Excluding sales of vehicles and parts, retail sales contracted 0.2 per cent in March.



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