Canada’s Year-over-year Consumer Price Index +1.7% in April

After four straight months of decline, the year-over-year change in Canada’s all-items Consumer Price Index (CPI) headed back up again in April 2008. The latest inflation rate of +1.7% was still quite restrained and well below the kind of increase (say +3.0%) that would set off any cries of alarm. Core inflation (+1.5%) was a shade lower than the all-items rate, although it also jogged up slightly versus the previous month. Core inflation remains below the Bank of Canada’s target level of +2.0%.

Canada’s overall inflation rate still remains at less than half of the U.S. level (+3.9%). However, Canada’s advantage over the U.S. with respect to “core” inflation is starting to narrow (+1.5% in Canada versus +2.3% in the U.S.). By the way, the latest labour force reports record average hourly earnings in Canada rising by +4.3% (which is higher than Canadian inflation) while in the United States they are +3.4% (which is lower than U.S. inflation). This is a situation that bears some watching.

Some Sub-index Performances

The largest month-to-month price changes in Canada were recorded in transportation (+2.0%), shelter (+0.9%) and food (+0.8%). Moving in the opposite direction, clothing and footwear was -1.8% in April versus March. On a year-over-year basis, the biggest upward jump occurred in shelter (+4.3%), whereas the largest downward drop came in clothing and footwear (-3.5%).

The year-over-year change in gasoline prices accelerated in the month. In March, the rise had been +7.9%. In the latest month, it was +11.6%. International oil prices have kept on setting records throughout the spring. The other most notable price increase came in bakery products (+10.4% year over year). This was the largest gain for this sub-index since November 1981.

Regionally, the two prairie boom provinces of Saskatchewan and Alberta are seeing the largest gains in overall price levels (+3.2% in both provinces), mainly due to new housing markups. Ontario (+1.3%) is registering the lowest price increase. Ontario’s economy is being slowed by weak export sales of manufactured product to the U.S. However, the important financial sector in Ontario has not been affected to the same degree as in the American northeast, thanks to the large role played by the resource sector on the Toronto Stock Exchange.

Bank of Canada will be Cautious in Adjusting Interest Rates

The latest news about the inflation rate in Canada is good because it is not particularly dramatic. However, the slight upward jog in the numbers is all the more reason to think that the Bank of Canada (BOC) will be cautious when it next meets to decide on interest rate policy.

The overnight rate currently stands at 3.00%. If it is adjusted at all, a 25 basis point cut (100 basis points = 1.00%) is the most that might be expected. The U.S. economy appears set to make some headway again and this will have a positive impact on Canada. The BOC next meets to discuss interest rates on June 10th.

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