Canada's inflation rate was the slowest in three years in April and core measures moved back within the central bank's target band for the first time since the pandemic rebound, the kind of progress Governor Tiff Macklem has said may allow him to cut borrowing costs at the next meeting on June 5.
Consumer price growth slowed to 2.7% in April from a year ago versus the March pace of 2.9%, in line with economist forecasts. The "trim" core index slowed to 2.9% from 3.2% and the "median" faded to 2.6% from 2.9%, and both measures were the lowest since June 2021. Statistics Canada said Tuesday from Ottawa that the "broad-based deceleration in the headline CPI was led by food prices, services and durable goods."
Core inflation measures have shown almost unbroken progress over the last four months, in line with Macklem's comments that the time for lowering the 5% policy lending rate is approaching but he needs to see more evidence price stability is being restored. The Bank sets rates to keep inflation in the middle of a 1% to 3% target band. Macklem has said he can cut before inflation returns to 2% and he wants to make sure he doesn't inflict needless damage on an economy already showing some slack after 10 rate increases.
While the Bank's core measures were hard to interpret through parts of the pandemic rebound, other measures show similar results. Inflation excluding food and energy was 2.7% and excluding gasoline it was 2.5%. High profile food inflation also slowed to 1.4% from 1.9%, led in part by a base-year effect around beef prices, StatsCan said.
The April headline reading opens the second quarter slower than the Bank's forecast for prices to advance by 2.9%. Officials predict inflation will slow to 2.5% in the second half of this year and return to target sometime in 2025. Inflation slowed in April even as gasoline price gains picked up to 6.1% from the 4.5% pace in March, including a hike in the federal carbon tax.
The inflation report is crucial data followed only by first-quarter GDP on May 31 before the Bank’s next rate decision. Even that output data carries less weight because it would take a major miss to shake up the Bank’s view the economy has opened up some slack. That idea is backed up by a jobless rate that's climbed a percentage point and GDP that's downshifted over the past year.
Still, inflation has exceeded the Bank’s target for three years now, bringing concern about expectations and second-round effects from bigger wage demands. Some economists see the Bank waiting until July to cut rates.
Monthly prices also came in line with expectations with a 0.5% increase in April from March.
