Canada’s April inflation report released by Statistics Canada was mixed as CPI accelerated while core CPI slowed.



Canadian CPI (inflation) data released on Tuesday 16Thursday May showed annualized inflation rose to 4.4% from 4.3% in April, above the consensus forecast of 4.1%. Month-on-month, CPI rose to 0.7%, from 0.5% and above the consensus forecast of 0.4%.

Interestingly, Core CPI moved in the opposite direction. Two key annual indicators closely watched by the Bank of Canada – the trim and median base rates – averaged 4.2%, down from 4.5% in March. This was in line with forecasts.

The main drivers of inflation were the usual suspects: gasoline and food prices. Gasoline prices jumped 6.3% in April compared to March. The increase followed OPEC’s recent announcement that it would cut production, pushing oil prices higher. Food prices continued to rise, although there was a slight improvement in April with a year-on-year increase of 9.1% compared to 9.7% in March.

The sharp rise in interest rates continues to weigh on Canadian households. Mortgage interest costs rose a massive 28.5% in April compared to April 2022 as more Canadians took out mortgages at higher interest rates.

A slight increase in inflation will be disappointing for the Bank of CanadaThis is the first rise in inflation since June 2022. Still, BoC pays more attention to Core CPI, which excludes volatile items and is considered a better indicator of inflationary trends. Today’s inflation data is even more important as it is the last inflation release before the Bank of Canada’s next meeting on June 7Thursday. The BoC suspended rates in April, the first after 10 consecutive rate hikes, and markets will be keenly interested in how Bank of Canada policymakers react to this latest inflation report.

There were no surprises in today’s inflation report as both headline and core CPI were within expectations. Yet, currency pair USD/CAD extended its losses and fell by today around 0.40%. The move is likely in response to the strong US retail sales report, which was released at the same time as Canada’s inflation report. US retail sales rose to 0.4% from -0.7% and core retail sales improved to 0.4% from -0.5%. Improvements in US retail sales boosted risk-on sentiment, likely pushing the Canadian dollar higher.

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