Canada shows the fastest consumer prices growth in 10 years

Last month, consumer prices in Canada reported the fastest growth in 10 years, exceeding economists’ forecasts and raising concerns that the country is entering a stage of persistent inflation.

According to Statistics Canada, the annual inflation reached 3.4% in April, following 2.2% seen in March. Meanwhile, economists expected 3.2%. A month-over-month comparison shows a 0.5% gain, while economists predicted only a 0.2% rise.

The annual results, which were the largest since May 2011, could raise concerns that price pressures are stronger than the Bank of Canada expected, earlier cautioning against over-reacting and saying the inflation increase was temporary. In case the inflation is long-lasting, the BoC may start raising rates sooner. Now, investors are anticipating it only in 2022.

Core inflation was up from 1.9% in March to 2.1% in April, marking the largest number since 2012.

The main driver of an annual inflation were gasoline prices, showing a 62.5% gain from a year ago, when the prices fell to an 11-year low at the beginning of the pandemic. In case of a monthly comparison, the main growth driver was a shelter sector, pushed up by rising building prices and strong demand for single family houses.

Bank of Canada Governor Tiff Macklem expected the inflation to reach almost 3%. However, he also noted the underlying price pressures are still restrained by the on-going economic slack. In its latest forecasts, the BoC expects the inflation to reach 2.9% in the second quarter before getting back to its 2% target level by the end of 2021.

“Until the central bank sees job market slack mostly offset, and consumer wage and inflation forecasts show signs of ending the long period of weakness, we believe the policy makers will move very carefully towards a rate increase,” – says Bloomberg economist Andrew Husby.