Canada's annual inflation rate rose to 2.8% in April, up from 2.4% in March. Official data from Statistics Canada showed that a surge in domestic gasoline costs as the global crude oil supply chain was disrupted by the Iran war was the main factor behind the rise in the cost of living.
Despite the jump to a two-year high, the 2.8% reading was actually below economists' initial forecast of 3.1%. The tourism sector, accommodation costs, and furniture prices, which recorded annual declines, acted as a counterweight that kept inflation from accelerating.
The report also revealed that gasoline prices jumped 28.6% year-on-year in April, while food costs rose 3.5% and house rents rose 3.6%. To ease the burden on the people, Prime Minister Mark Carney has announced a relief initiative of 10 cents per litre of petrol excise duty exemption for a period of five months.
From a monetary policy perspective, the “core” inflation measures (CPI-median and CPI-trim) closely monitored by the Bank of Canada are showing a downward trend to around 2% to 2.1%. This cooling of core inflation is a relief to the central bank as it indicates that price pressures have not spread systemically to other sectors of the economy.
Immediately after the release of this data, financial markets responded by lowering expectations of interest rate hikes in the near future. The Canadian Dollar (Loonie) depreciated by 0.20% to C$1.3766 against the US Dollar, while the two-year government bond yield fell 4 basis points to 2.782%.
