Canada’s inflation rate reversed its cooling trend last month and moved higher, to a 4.4 per cent annual rate.
Economists had been expecting new data released by Statistics Canada on Tuesday to show the cost of living had eased from March’s 4.3 per cent pace to something around 4.1.
Instead, it moved higher again, as the cost of things like gasoline, rent and mortgages increased during the month.
It’s the first acceleration in the cost of living since June of 2022, when Canada’s inflation rate hit a more than 40-year high of 8.1 per cent.
Food prices have been a major source of concentration for Canadian families of late, and while overall costs have come down from their recent record highs, they are still staying at eye-watering levels.
Grocery prices have increased by 9.1 per cent in the year up to April. That’s down from March’s 9.7 per cent pace but still more than twice as high as the overall inflation rate.
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Gas prices are going up again
Gasoline prices — which spiked in early 2022 after the Russian invasion of Ukraine — have eased from the highs seen a year ago, but are once again inching higher on a monthly basis.
Pump prices rose by 6.3 per cent in the month of April alone, the biggest jump seen since October of last year. While gasoline prices are going up for a variety of geopolitical and macroeconomic reasons, one factor in their monthly jump was that the federal carbon tax increased on April 1, to $65 per tonne of emissions.
That added about three cents per liter to the cost of gasoline, and brought the total tally to roughly 14 cents per liter.
According to government data, the average retail price for a liter of gasoline in April was just over $1.60. That’s up from $1.50 in March, but still down significantly from the all-time high of $2.07 reached in June of 2022, and $1.74 a liter this time last year.
The increase in the inflation rate will not come as welcome news to the Bank of Canada, which has been raising its interest rate aggressively in order to extinguish the flame of constantly higher prices.
Other ‘price pressures’ continue
The bank recently hit pause on its rate hikes because the numbers have shown a clear cooling in the inflation rate since last summer, but at least one economist says Tuesday’s data could cause the central bank to have to think about hiking some more.
“The risk of a return to rate hikes at the next … release can’t be ruled out, as staying on hold is now very dependent on seeing a slowdown in the labor market,” CIBC economist Avery Shenfeld said.
Trading in investments known as swaps, which bet on what the central bank is going to do, implied there is now an almost 1-in-3 chance of a rate hike at the bank’s next policy meeting. As recently as the start of May, those odds were barely 1-in-50.
The inflation numbers “will be a bit of an eyebrow raiser for those counting on steady progress,” Shenfeld noted.
Jay Zhao-Murray, a market analyst at foreign exchange firm Monex Canada, says that people have been so focused on the annual rate coming down that very little attention has been paid to what has been happening below the surface.
A big reason why the headline rate was coming down was because of the so-called “base effect” — the comparisons today are being held up against the same time a year ago, when prices were uncharacteristically high.
So while the annual rate has been coming down, many factors driving inflation have been pushing up in recent months, he said in an interview.
“Just because the headline inflation rate is coming down doesn’t mean price pressures are softening,” he said.
He says it’s notable that almost every necessity — from food to transportation to shelter — keeps going up, despite the central bank’s best efforts.
“The cost of being a Canadian is going up quickly, and it’s not even a thing you can avoid,” he said. “It’s really not looking like a blip to me.”