2023-05-16 12:39:49
The inflation rate started to rise once more in April and the economy is still showing no signs of recession, which might force the Bank of Canada to resume raising its key rate, which it put on hold.
“We certainly can’t rule out another rate hike,” said Desjardins economist Benoit Durocher who, like most observers, expected the downward trend in inflation to continue in April.
The opposite happened. From March to April, the Consumer Price Index (CPI) rose 0.7%, following rising 0.5% in March. Year-on-year, the increase reached 4.4% in April, compared to 4.3% in March. In Quebec, the price increase is 4.8%, a rate higher than the national average.
This is the first acceleration in consumer price inflation since June 2022, when the CPI hit its highest level at 8.1%. From one month to the next, it was the rise in the price of gasoline that thwarted the forecasts of economists. OPEC+’s decision to cut production to support the price of oil drove pump prices higher, but the impact was short-lived.
Five of the index’s eight major components are up 0.5% or more, including food, “which is disappointing as this component had shown signs of moderating last month”, the economists commented. from the National Bank Matthieu Arseneau and Alexandra Ducharme.
At the grocery store, the price increase was 9.1%, compared to 9.7% in March. The slowdown is explained by a weaker increase in the prices of fresh vegetables, in particular the price of lettuce, which fell by 3.3%.
Excluding food and energy, prices are still rising 4.4% year on year. The core inflation measures tracked by the Bank of Canada, the trimmed CPI and the median CPI, are down slightly, but their stability is certainly disappointing for the central bank.
One step forward, one step back
If the possibility of an interest rate hike is resurfacing, it is because April’s disappointing inflation data comes on top of other signs of economic strength. The labor market remains strong and continues to create jobs, wages are rising and the housing market, very vulnerable to rising interest rates, is beginning to show signs of recovery.
According to Benoit Durocher, it will take a more pronounced economic slowdown to bring inflation back to the 2% target, which might require another key rate hike.
“We’re not there yet,” he said, noting that the Bank of Canada will probably not raise its key rate in its next decision, scheduled for June 7. “What is likely is that the bank will have to keep its rate at its current level for longer. »
Going from an inflation rate of 8.1% to 4.3% was the easy part, according to the economist. “The further we go in time, the more difficult it will be. It won’t be a nice straight line. There will be steps forward and steps back. »
The Bank of Canada predicted that the inflation rate would drop to 3% in the summer. With the step back from April, it may be necessary to wait until September to reach this 3%, believes Benoit Durocher.
An extended break
On closer inspection, the slight upturn in inflation in April is not dramatic, said Mario Iacobacci, economics consulting partner at Deloitte Canada.
“If we dig a little deeper into what is causing this disappointment, we see that it’s the price of gas and the increase in mortgage costs,” he says. None of these have to do with the overheating economy. »
The Bank of Canada has every reason to expect the impact of the eight successive key rate hikes, which took it to 4.5%, to have its full effect on the economy.
The labor market still looks strong, but that’s a lagging indicator of the state of the economy, he said. Likewise, the impact of interest rate hikes will be fully felt as homeowners renew their loans at higher rates. “We haven’t seen everything yet. »
Mario Iacobacci does not think that any other key rate hikes are coming. “But we may very well have to wait longer to see rates come down,” he said, which increases the risks of a recession and that this recession is stronger.
Products cheaper than a year ago
- Bacon : – 5,4 %
- Lettuce: -3.3%
- Refrigerators and freezers: -4.7%
- Essence : – 7,7 %
- Air transport: – 3.9%
- Computers, software and IT supplies: -7.9%
Products more expensive than a year ago
- Organized trips: + 26.9%
- Books and reading material: +16.2%
- Window treatments: +10.4%
- Stationery: +17.3%
- Non-alcoholic beverages: +13.5%
- Frozen and dried vegetables: + 18%
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