Headline Inflation Cools in April, but Core Measures Higher

The Canadian inflation rate cooled considerably in April, mainly driven by lower gasoline prices amid the federal government’s removal of the carbon tax. 

The Statistics Canada consumer price index (CPI) rose 1.7% year-over-year in April, down sharply from a 2.3% gain in March, and near market expectations of 1.6%. 

However, it was not all good news. So-called core inflation - which excludes the more volatile components of the CPI - increased from the previous month, with some measures up by more than 3%. That is above the Bank of Canada’s preferred target of around 2%. 

This month’s increase in core inflation clouds the Bank of Canada’s next interest rate announcement, which is due June 4. Most analysts still expect the Bank to further trim its key overnight lending rate amid a slowing economy, but the rise in core inflation could be a wildcard. 

According to StatsCan, gasoline led the decline in consumer energy prices, falling 18.1% year over year in April, following a 1.6% decline in March after the end of the carbon tax. Lower crude oil prices also contributed to the decline in gasoline prices, the federal agency said. The removal of the carbon tax also sent natural gas prices down, falling 14.1% after a 6.4% gain in March. 

On the other hand, prices for food purchased from stores grew at a faster pace, increasing 3.8% year over year compared with 3.2% in March. It marked the third straight month that prices for food purchased from stores has increased at a faster rate than headline inflation.