Canadian inflation elevated but may be close to peak

五月 18, 2022 | Claire Fan


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We expect higher interest rates, both in Canada and abroad, will ultimately begin to cool demand and price pressures as the year progresses.

  • Industrial input and output prices are still surging, keeping pressures broadly based
  • Grocery prices rising at fastest pace since the early 1980s
  • But central banks rate hikes are expected to slow demand
  • Home buying costs (accounting for ~20% of year-over-year CPI growth) will start to slow on lower housing demand

Headline Canadian inflation ticked up to 6.8% year-over-year in April, close to consensus expectations for the rate to hold at the 6.7% posted in March. Energy inflation at 26.4% was largely unchanged from a month ago, but is set to increase again in May with gasoline prices rising to above $2 per liter.

Growth in food prices accelerated again to 8.8% above a year ago, the highest in over four decades. The gain was wide-spread across all food items, including household staples like pasta (+19.6%) and coffee (+13.7%). Taken together, energy and food products accounted for almost half (47%) of the year over year headline CPI growth in April. But price pressure remains broadly-based. Over 70% of the consumer basket in April was still seeing price growth above the target 2% rate relative to pre-pandemic.

Outside of food and energy products, inflation held in April at 4.6% year over year. Although home-owning related expenses still ticked up, they are set to peak before slowing in coming months with higher interest rates cooling home markets (and prices). Higher interest rates also pushed mortgage costs up month-over-month for the first time since April 2020, although to levels that are still sharply depressed compared to pre-pandemic.

Price growth for travel and hospitality services also picked up from March, and is poised to continue to accelerate in coming months backed by surging travel demand and a stockpile of household pandemic savings.

Overall, elevated consumer spending, tight labour market conditions and higher wage growth are expected to maintain pressure on the Bank of Canada to hike rates quickly, including another 50 basis point increase in the overnight rate expected at the next policy decision in June. Near-term price pressures are still very firm. But we expect higher interest rates, both in Canada and abroad, will ultimately begin to cool demand and price pressures as the year progresses.

RBC Inflation Watch: a tracker of key indicators on price trends in Canada.