Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Inflation eased to 1.7% in April from 2.3%, slightly above expectations. The deceleration in inflation is entirely due to the removal of the Carbon Tax. As such, inflation excluding energy rose to 2.9% from 2.5% in March. Similarly, CPI excluding indirect tax rose 0.4% m-o-m in April, pushing the y-o-y change to 2.4% from 2.2%,
In addition, the Bank of Canada’s preferred measures of core inflation also increased above 3%, the upper band of the inflation target, with CPI-median at 3.2% and CPI-Trim at 3.1%.
The breadth of inflationary pressures was mostly unchanged in April. The share of components of CPI rising by more than 5% increased marginally in April to 19% compared to 18% in March, and the share of components increasing by more than 3% eased to 39% from 41%. Both measures have clearly bottomed out, and we note that the share of components increasing by more than 3% is close to its highest in more than a year and well above historical norms (see Fig. 1). This confirms that only a handful of components were responsible for the lower inflation in April, suggesting some stickiness and broadening in inflationary pressures.
The recent trend in CPI’s monthly changes suggests that the momentum in inflationary pressures eased in April. As such, partly due to the removal of the Carbon Tax, we observe that the 3-month annualized changes of many CPI components are below 3% (see Fig. 2), with the 3-month annualized change in headline CPI at 1.2%.
However, the momentum of BoC’s core measures accelerated to 3.4% in April, returning above 3% (see Fig 2), and the measure has been above 3% for 6 of the 7 previous months. This suggests some stickiness in the core measures and that price pressures have been mostly above target over the past seven months.
We would also note that the momentum in good prices decelerated sharply to -5.4%, due to the removal of the Carbon Tax, but the momentum for services accelerated sharply to +6.4%, well-above 3%. The strong momentum in service prices is another sign of elevated and sticky inflationary pressures.
Overall, the report suggests that, while inflation eased in significantly in April, mostly due to the removal of the Carbon Tax, underlying inflationary pressures remained elevated. This puts the BoC is a very hard situation. On one side, the labour market and the economy are weakening and are expected to remain weak for some time, while on the other hand, core inflation is stronger than expected and is likely to be stickier than expected. With this in mind, whether the BoC cuts at the June meeting will be a close very call.
In Alberta, inflation eased to 1.5% in April, pushed lower by the removal of the Carbon Tax, leading to a decline in transportation costs (-2.2% y-o-y), due to a drop in gasoline prices (-18.2% y-o-y. The end of the Carbon Tax also slowed shelter inflation via lower natural gas prices. On the flip side, food prices accelerated to 3.5% y-o-y. Inflation excluding food and energy (a core inflation measure) eased marginally to 2.9%, the highest rates among the provinces.
We also note a sharp regional disparity, with inflation above the national measure in all provinces West of Ontario and lower than the national measure in the East.
The Consumer Price Index (CPI) decreased 0.1% m-o-m non-seasonally-adjusted in April and the inflation rate eased to 1.7%. This was weaker than expected. The end of the carbon tax pushed some component of CPI lower. As a result, gasoline prices dropped 10.2% m-o-m, pushing transportation costs lower by 1.5% m-o-m.
Most of the deceleration in inflation was due to the removal of the Carbon Tax. Excluding the impact of the change in indirect tax, CPI was up 0.4% m-o-m in April and at 2.4% y-o-y, compared to 2.2% in March.
On a year-on-year basis, two of the eight major CPI components decelerated sharply in April, transportation declining 1.9% y-o-y from +1.2%, mainly due to lower gasoline prices (-18.1% y-o-y). Transportation cost reduced inflation by 0.3 percentage points(pp) in April.
Shelter cost inflation eased to 3.4%, its lowest since April 2021, and remain the main source of inflation, contributing 1.0pp to headline inflation, mainly due to higher rent (contributing 0.4pp) and mortgage interest costs (contributing 0.4pp).
Food price inflation jumped to 3.8% y-o-y, adding 0.6pp to inflation, as a the end of the GST holiday and some impact from the US tariffs and counter tariffs are pushing some prices higher.
Recreation, education and reading costs accelerated to 1.4% y-o-y in April (contributing 0.1pp to inflation) due to an increase in the travel service costs (+2.9% m-o-m).
In April, goods price inflation eased to -0.5% and service price inflation increased to 3.5%. Energy prices pushed inflation lower, lowering by -12.7% y-o-y compared to the same month last year, after a rise of 3.0% y-o-y in February. Excluding food and energy, prices rose 0.5% m-o-m in April and increased by 2.5% compared to the same month last year. The Bank of Canada’s old measure of core inflation, CPI excluding the 8 most volatile components and indirect taxes, increased to 2.5%.
Looking at the BoC’s core measures of inflation, they accelerated slightly in April and were marginally above 3%. CPI-Trim was 3.1%, after 2.9% in March, while CPI-Median increased to 3.2% from 2.8%. As a result, the average of the two measures increased marginally to 3.15%, above 3% for the first tine in ten months.
By provinces, headline inflation was the highest in Quebec (+2.2%), Manitoba (+2.1%), BC (+2.0%), Saskatchewan (+1.9%), and Ontario (+1.6% y-o-y), while it was the lowest in New Brunswick (+0.2%), Newfoundland (+0.4%), and PEI (+0.6%).
Core inflation, or CPI excluding food and energy, with the highest in Alberta (+2.9%), BC (+2.8%), Quebec (+2.7%). It was the lowest in Newfoundland (+1.1%), PEI (+1.7%), and New Brunswick (+1.7%).
In Alberta, prices decreased 0.5% m-o-m and inflation eased to 1.5% in April. Only one out of eight CPI components accelerated on the month. Transportation costs declined -2.2% y-o-y in April, after increasing 1.8% y-o-y in March, and was the main source of drag on inflation, reducing headline inflation by 0.4 percentage points. This was the result of 18.2% y-o-y drop in gasoline price prices in April.
Shelter costs decelerated to 2.5% y-o-y, from 4.4% y-o-y in March, contributing 0.7pp to inflation. The slower pace of shelter cost inflation was due to the impact of the removal of the Carbon Tax on the cost of natural gas (-22.9% y-o-y) and to a lesser extent to slower rent inflation (+1.3% y-o-y in April vs 4.6% y-o-y in March).
Food prices inflation increased to 3.5% y-o-y from 3.0% y-o-y, contributing 0.6pp to inflation. The increase could be partly due to the US tariffs and Canada’s counter tariffs.
Goods price inflation was -0.7% y-o-y in April after 2.0% y-o-y. Services prices inflation remained unchanged at 3.5% y-o-y. Inflation excluding food and energy decelerated to 2.9%, the highest amongst provinces. Energy costs eased to -17.0% y-o-y compared to -0.1% y-o-y in March.
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Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.