EconoFACTS

May 19, 2026 | 09:08

A Good Hab-it: Icy Core CPI

Economist

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter brings more than three decades of experience analyzing gl... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter brings more than three decades of experience analyzing gl... (Read more)

Yes, Canadian consumer prices rose 0.4% in April (or 0.3% in s.a. terms), lifting the headline inflation rate to 2.8% from 2.4% the prior month. The bump was driven by an 8.9% jump in gasoline prices, which we all saw coming a mile away. But the real story in today's release was how would all other prices respond to the spike in energy costs, and the news there was much better than expected. Before digging into all the messy details, one only needs to know that CPI excluding gasoline was up precisely 2.0% from a year ago, so any high-side miss in inflation can be exclusively tied to what's going on at the pumps.

Now for some details. First, the headline measure was a hefty 2-3 ticks better/lower consensus. Second, most measures of core inflation took a further step back in April, with yet another month of mild gains in seasonally adjusted terms. For example, the BoC's trim rose just 0.1%, leaving the 3-month trend at a mild 1.5% annualized pace, and cutting the 12-month rate to 2.0%, right on target for the first time in more than five years. Median CPI was a tad firmer at +0.2% m/m (actually 0.18% to the second decimal), 2.2% on three months, and 2.1% y/y, but also very close to target. Finally, CPI excluding food, energy and indirect taxes careened lower again to just a 1.5% y/y pace, and is up a tiny 0.3% at an annual rate in the past three months—i.e., if it weren't for those bothersome items like filling up your car and paying for groceries, there would be almost no inflation.

In a small bit of good news, grocery prices receded a touch in April, trimming the annual rise to 3.8% from 4.4%, and a recent high of 5.0%. In a similar light, annual rent increases pulled back to 3.6% y/y from 4.2%, the slowest increase in more than four years, with more relief incoming. Mortgage interest costs have also now become a serious source of disinflation, falling 0.1% y/y, the first drop since mid-2022 and compared with the peaks of 30%+ y/y just three years ago. It wasn't all great news on the core front, as clothing prices turned a bit positive last month on a big bump in women's wear. But that seemed to be a bit of an outlier, as even airfares—which were expected to be hit by the ramp-up in fuel costs—actually eased last month, and are down 1.7% y/y. (We have said this before, but we still want to know which airline StatCan is flying on ... )

Looking ahead, gasoline prices are headed for yet another big monthly rise in May, currently tracking a 7% m/m hop. This is expected to give one more bump higher to headline inflation in next month's report to around 3%, with some further possible upward pressure in June. However, note that U.S. inflation is already at 3.8% and likely going above 4% next month, so Canadian underlying trends look much milder.

Bottom Line: Looking beyond the nasty business at the gasoline pumps, this report is unambiguously soft. It appears that the sizeable and growing output gap is prompting ongoing disinflationary pressure in many other sectors. The risk is that still-rising energy prices disrupt that calming trend over the next few months. However, near-term Bank of Canada rate-hike speculation—which has ratcheted up in recent weeks—should calm on this friendly report. This cool core inflation backdrop reinforces our bias that rate hikes would be a big mistake in the current Canadian economic landscape. Still, the reality is that as long as oil prices continue to grind higher, the rate-hike chatter will remain.

Table 1 - Canada — CPI

(month/month % change)

Source: BMO Economics, Haver Analytics