EconoFACTS

May 21, 2024 | 09:13

Canadian CPI: Will April Scoured Bring June Rate Cut?

Economist

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

More of what the good inflation doctor ordered. Canadian CPI rose 0.5% m/m in April (but up a tame 0.2% in seasonally adjusted terms). Because of a heavier reading last April, the annual inflation rate fell two ticks to 2.7%—basically in line with consensus. But beyond that, the real news was the main measures of core inflation all dipped below 3%, or back within the BoC's 1%-to-3% zone of comfort. In adjusted terms, all were up a mild 0.1% m/m, and all now have the three-month trend below a 2% annualized pace. This clipped the annual rate in median prices to 2.6% (from 2.9%), trim mean to 2.9% (from 3.2%) and ex food & energy to 2.7% (from 2.9%). The Bank's former main core metric, CPIX, rose was flat last month and is now up just 1.6% y/y. All of these yearly measures of core are at lows not seen since mid-2021, or when rates were still at the floor and hikes weren't even being pondered yet.

After being a non-factor for much of the past year, gasoline prices popped 7.9% m/m, alone accounting for three ticks of the overall increase last month. Grocery prices have been a big factor, but continued to fade in April, rising just 1.4% from a year ago, the slowest pace since 2021.

Among other prices, the biggest movers on the high side were internet fees (+7.0%), although they had been oddly low previously, and the usual suspects in shelter costs—mortgage interest (1.2%) and rent (0.5%). The good news on these two bulky items is that both moderated on an annual basis, with interest costs dipping to 24.5% y/y (from last year's peak above 30%), and rent off its high to 8.2% (from 8.5%). Low side readings last month were dominated by volatile items, including big declines in travel tours, airfares and furniture. Note that furniture & appliance prices are down 0.5% y/y, and clothing costs have also dropped in the past year, as Canadians back away from purchases that can be deferred.

Bottom Line: Chalk another one up for the doves, with four consecutive tame CPI readings to start 2024. There is really no debate that monetary policy is tight in Canada, and that it is now consistently weighing on underlying inflation. The key question for the BoC is whether inflation has tamed sufficiently to now start reducing the degree of restrictiveness. We believe that the door is open for a BoC rate cut, and we have been leaning to June move for the past six months. But it remains a close call, and when the Bank does eventually move, it will be gradual with a highly patient Fed acting as a limiter on how far and how fast Canadian rates can fall.

Table 1 - Canada — CPI

(month/month % change)

Source: BMO Economics, Haver Analytics