Prices increased in April at the fastest annual rate in nearly a decade as gasoline prices posted a record year-over-year rise and inflation continued to rebound from the plunge at the start of the Covid-19 pandemic.
The annual pace of inflation rose to 3.4% in April, Statistics Canada reported Wednesday, up from a 2.2% year-over-year increase in the consumer price index in March.
The increase in April set a new pandemic-era high for the third time in as many months and was the highest reading since May 2011, when the consumer price index posted a year-over-year gain of 3.7%.
Gasoline prices in April were up 62.5% on a year-over-year basis, the largest annual increase on record as prices at the pumps rebounded from an 11-year low in April 2020.
Removing gasoline prices, Statistics Canada said annual inflation for April would have clocked in at 1.9%.
The headline inflation figure wasn’t a surprise given its comparison to the worst of the economic downturn last year when prices fell in April and May. Statistics Canada said that effect on the price index, which measures the change in prices on a variety of goods and services, should be temporary.
Benjamin Reitzes, BMO’s director of Canadian rates, agreed that high inflation likely won’t persist until the economy fully reopens and unemployment rates drop, but said it could rattle nerves if the trend outlasts the temporary effects.
“Then you’ll start to hear the volume pick up a little bit more about concern about more persistent inflation,” he said. “Then what you’re going to see are central banks really changing their tune — but we’re not there yet.”
Last week, Bank of Canada governor Tiff Macklem said he didn’t think a high reading in April would require immediate action by the central bank.
“Large parts of our economy remain very weak,” he told reporters following a speech to university students in Atlantic Canada last week. “There are far too many Canadians unemployed, and that is putting downward pressure on inflation. So, yes, we expect it to go up to around 3[%] and then diminish thereafter.”
Statistics Canada said the average of the three measures for core inflation, which are considered better gauges of underlying price pressures and closely tracked by the Bank of Canada, was 2.1% for April, up from 1.93% in March. The reading April was the highest seen since June 2009.
CIBC senior economist Royce Mendes pointed to the core measures and price levels as reasons why the central bank won’t suddenly raise its key policy rate.
The Bank of Canada has said it will keep its key rate at 0.25% until the economy has recovered from the pandemic and inflation is at the central bank’s 2%.
“They’ll be able to wait on the sidelines before hiking rates, sometime in the latter half of next year when the economy is fully healed,” Mendes said.
Prices increased across a breadth of sectors in April.
The cost of clothing and shoes were up 1.8% year-over-year after stores were unable to sell goods in the lockdowns last year, marking the first 12-month gain in the pandemic.
Statistics Canada said higher new home prices, costs to renovate decks and replace fences as well as furniture are also being driven up by rising lumber prices that it plans to keep a closer eye on in the coming months.
The agency also noted that prices were down 13% for telephone and cellular services compared with April 2020.