MNI: Canada Core Inflation Climbs Above Top Of BOC Target Band

Canadian core inflation rose above the top of the central bank's target band in April, making it much more difficult for officials to return to cutting interest rates in coming months even as a trade war slows the economy. 

The "median" core index accelerated to 3.2% in April from a year earlier from the 2.8% set in March, Statistics Canada said Tuesday from Ottawa. The "trim" index climbed to 3.1% from 2.9%, and both measures are rising the fastest in a year. Grocery inflation was elevated for a third month, climbing in April to 3.8% from 3.2% in March, and the cost of travel tours jumped 6.7%. 

Higher core prices overshadowed a decline in headline CPI after the government eliminated the retail carbon tax. Overall inflation slowed to 1.7% from 2.3% as gasoline prices tumbled 18%. Even that headline deceleration was less than an economist consensus for a 1.6% pace. The consensus was also for core prices averaging 2.9%.

Excluding energy, inflation also quickened to 2.9% from 2.5% and was also the fastest in a year. 

The Bank of Canada held borrowing costs at 2.75% at its last meeting after seven prior cuts in a row. Governor Tiff Macklem has said he’ll be cautious about more easing as a tariff war hits both growth and inflation. Economists have been split on whether the BOC will hold or cut another 25bps next month, though they saw another two or three reductions later this year as exports and investment weaken amid the trade war. 

The Bank sets interest rates to keep inflation in the middle of a 1% to 3% target band. Macklem has also said it's imperative to make sure inflation expectations stay under control as tariffs boost prices.

This report also contains a new method of calculating passenger vehicle and home insurance, thought that wouldn't alter the trends. The next report due June 24 will also incorporate annual revisions to the CPI basket, with details of the changes released a week earlier.