Canada's annual inflation rate rises at fastest pace since 2011

Statistics Canada says the consumer price index in April was up 3.4 per cent compared with a year ago, when prices plunged due to the COVID-19 pandemic.

StatsCan says consumer price index last month up 3.4% compared with a year ago

The price of gas rose 62.5 per cent year-over-year in April, the largest increase on record. (Kevin Yarr/CBC)

Statistics Canada says the consumer price index in April was up 3.4 per cent compared with a year ago, when prices plunged due to the pandemic.

Year-over-year inflation rose at its fastest pace since May 2011, the agency said Wednesday.

Prices rose in every major component on a year-over-year basis — and slightly faster than economists predicted. Analysts polled by Reuters had expected the annual rate to rise to 3.2 per cent in April.

Gasoline prices in April were up 62.5 per cent on a year-over-year basis, the largest annual increase Statistics Canada has on record.

Removing gasoline prices, Statistics Canada says annual inflation for April would have clocked in at 1.9 per cent.

Regionally, Statistics Canada says prices rose year-over-year in every province, but were generally higher in Atlantic Canada where furnace fuel oil, which has risen in price, is more often used.

Is inflation spike temporary?

Statistics Canada said the impact on the price index, which measures the change in prices on a variety of goods and services, should be temporary.

Last week, Bank of Canada governor Tiff Macklem warned about looming volatility in the headline inflation reading, adding that he didn't think a high reading in April would require immediate action by the central bank.

"The other part is 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 three [per cent] and then diminish thereafter."

A man wearing a COVID-19 mask walks past the Bank of Canada building on Wellington Street in Ottawa last month. (Trevor Pritchard/CBC)

The inflation rate is the biggest factor that the Bank of Canada considers when setting its benchmark interest rate. The bank likes to see an inflation rate of between one and three per cent.

Typically, the bank cuts its rate to stimulate the economy when the inflation rate is too low, and it raises its benchmark lending rate to cool things down when inflation is too high.

Analysts differ

Analysts differed on what the current rate of inflation means for the Bank of Canada.

Ryan Brecht, a senior economist at Action Economics, said that given that the central bank views the inflation spike as temporary due to the low numbers a year ago, they are likely to take this report in stride.

But Derek Holt, vice-president of Capital Market Economics at Scotiabank, said the narrative that inflation is transitory as the economy recovers is "at risk."
"If we can post numbers like this in lockdown with stay-at-home orders, just imagine what happens when the economy  reopens," he said. "This is an across-the-board surprise."

Benjamin Reitzes, BMO's director of Canadian rates, said high inflation likely won't persist until the economy fully reopens and unemployment rates drop but that 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."

With files from Reuters and CBC News

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