Canadian Inflation (April 2021)

Canadian Inflation (April 2021) - May 19, 2021

Canadian inflation, as measured by the Consumer Price Index (CPI), rose to a ten-year high of 3.4% year-over-year in April, up from 2.2% in March.  Much of the increase in inflation was the result of base-year effects as prices posted a steep decline during April of last year during the first few months of the pandemic-induced shutdown.  For example, gasoline prices were 62.5% higher in April 2021 than in April 2020.  On a seasonally adjusted month-over-month basis, the CPI was up 0.6% in April. In BC, consumer prices were up 0.2% month-over-month and up 3% compared to April 2020.

While inflation is currently running higher than the Bank of Canada's 2 percent target, much of the increase looks to be temporary and should fade as base-year effects become less significant in coming months.  Measures of core inflation, which strip out more volatile prices, are also up slightly. The Bank of Canada's three preferred measures of core inflation was trending at  2.1% or 0.2 points above inflation in March.  How inflation evolves over the next 3 to 6 months will be very important for the stance of monetary policy over the next year.  If higher inflation is not just a temporary phenomenon but is being driven by an over-stimulated economy then we could see the Bank of Canada act on interest rates prior to 2023.  However, if the uptick in inflation starts to fade in the coming months, we expect the Bank will stay on its current course.

Link: https://mailchi.mp/bcrea/canadian-inflation-april-2021

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