Canada’s inflation rate at 1.6% for second month

OTTAWA The country’s annual inflation rate once again rang in at 1.6 per cent last month as higher energy costs offset a seventh consecutive decline in grocery store prices, Statistics Canada said Friday.

The agency’s consumer price index for April identified higher prices for gasoline and natural gas as the biggest upward drivers in year-over-year inflation.

On the other hand, fresh produce and clothing applied the most downward pressure on the inflation rate.

Heading into next week’s interest rate announcement, experts like BMO chief economist Doug Porter expect the Bank of Canada to emphasize the softening underlying inflation indicators, which strip out some of the more volatile components.

“The modest core inflation we’re seeing is probably the single, strongest argument the Bank of Canada has to do nothing,” Porter said, adding that ongoing uncertainty over U.S. policy, particularly on trade, would be up there as well.

“There’s just no rush, no urgency at all for the Bank of Canada to move on rates.”

Porter said on the one side, there are all kinds of indicators — like hot housing markets, robust consumer spending, the low unemployment rate and strong growth to start the year — telling the central bank to hike its very low, interest rate policy.

But at the same time, he noted Friday’s numbers revealed that the average of the three core inflation measures has slid to about 1.4 per cent from 1.6 per cent since the beginning of 2017. It’s slipping further away from the bank’s ideal target of two per cent, he added.

“While the economy is showing a strong momentum, the inflation remains particularly disappointing,” National Bank senior economist Matthieu Arseneau wrote in a research note to clients, which also pointed out that there’s usually a three-to-fivequarter lag for underlying inflation to respond to economic conditions.

“For this reason, we continue to expect core (inflation) to speed up in 2017 in line with the recent economic momentum.”

Two of the agency’s three measures of core or underlying inflation slowed last month, while the third was unchanged. The indicators are closely scrutinized by the Bank of Canada. CPIcommon stayed at 1.3 per cent last month, CPI-median decelerated to 1.6 per cent from 1.7 per cent and CPI-trim slowed to 1.3 per cent from 1.4 per cent.

The annual headline inflation rate matched Statistics Canada’s 1.6 per cent reading for March, but was slightly below a consensus estimate of 1.7 per cent, according to Thomson Reuters data.

Prices at the pump were 15.9 per cent higher last month and the cost of natural gas rose 15.2 per cent more, Statistics Canada said. Overall food prices were down 1.1 per cent as prices for fresh fruit fell 6.2 per cent.