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Forward Guidance: Canada’s Inflation Rate Boiled Again in April


Canada’s CPI report will be the headline event next week as inflation continues to roil the economy. We look for year-over-year price growth to hold steady at 6.7% in April. That would match March’s reading and would still be the highest level since the start of inflation targeting in 1991. Energy price growth likely slowed as oil prices retreated from a dramatic spike at the onset of the Russian invasion of Ukraine. The rapid increase in home prices—which has also been disproportionately impacting the CPI growth rate—is expected to have slowed too based on early data from local real estate boards. But food price growth probably accelerated as rising input and transport costs filtered through supply chains. A spike in wheat prices tied to the war already pushed pasta prices higher in March. And inflation pressures have continued to broaden over a wider array of goods and services.

The reopening of the hard-hit travel and hospitality sector will likely add more fuel to inflation fire. Mobility has increased in recent weeks, and our own card spending data shows travel and tourism activity bouncing back. That’s good news for businesses, but makes some sharper price growth within those sectors more likely. Firm inflation (and strong labour markets) continue to reinforce the need for the Bank of Canada to accelerate its rate hiking cycle. We look for another 50 basis point increase in the overnight rate in June—adding to the 75 basis points of hikes over March and April.

Week ahead data watch:

  • Statscan preliminary estimate for Canadian manufacturing sales showed a 1.7% increase in March. Strong auto manufacturing production leaves some upside risk to that call.
  • Canada’s real estate resale market will likely show some moderation in home buying activity based on early local market reports. Price growth likely slowed with an outright decline already reported in the Toronto market.
  • US Industrial activity is expected to have edged higher in April despite ongoing global supply chain disruptions. We look for retail spending to rise as well, boosted by higher auto sales.

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