Canada’s inflation rate slowed to 2.7% in April, boosting bets for June rate cut

11:10 a.m.

What’s next?

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Tuesday’s inflation report was one of the last major economic releases before the Bank of Canada’s rate decision on June 5. Over the next two weeks, Statscan will publish the latest numbers on retail sales, cross-border trade and gross domestic product, among others.

However, it’s unlikely that any of those reports will drastically alter market expectations of interest rate policy.

Furthermore, the Bank of Canada’s rate-setting council is now in a quiet period before the June decision. Central bankers won’t be giving any additional speeches that economists can parse for hints of their next move.

Ultimately, the next two weeks will bring plenty of opinions and analysis over what the bank should do. The debate will be settled on June 5.

– Matt Lundy

10:55 a.m.

The good and bad from today’s inflation report

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April’s consumer price data confirms that inflation is now a story of two opposite trends when it comes to the cost of living.

On the one hand, price increases at the grocery store are becoming smaller and smaller. Food prices, a major driver of inflation through 2022 and 2023, have been growing at a slower pace compared with the overall consumer price index since February of this year.

On the other hand, the cost of keeping a roof over one’s head continues to vastly outpace the overall rate of inflation for Canadians exposed to mortgage rate or rent increases.

Both of those shifts remained in full display in the April inflation data.

Overall grocery prices last month were just 1.4 per cent above where they were 12 months prior. The annual uptick was smaller than the 1.9-per-cent increase Statistics Canada recorded in March.

The annual rate of grocery inflation peaked at over 11 per cent in January, 2023, and has been trending down since. In February of this year, grocery prices rose less, on a year-over-year basis, compared with the overall CPI for the first time since October, 2021.

And slower food inflation isn’t just about groceries prices no longer rising as fast as they used to. Shoppers are also seeing some price decreases in at least a few supermarket aisles. Prices of fish, seafood, fruits and nuts posted declines in April compared with the same month last year, a trend that was already on display in March.

But for many Canadians, tamer grocery inflation does little to soften the financial punch from inexorably rising rents and mortgages renewing at much higher rates.

Many homeowners who are due for mortgage renewals in the next couple of years are in for payment shock. Their monthly payments are expected to swell as they switch from the record-low mortgage rates secured in the earlier stages of the pandemic to much higher borrowing costs.

The typical household with a variable rate mortgage will see their monthly instalment swell by more than 60 per cent, the Bank of Canada said in a recent analysis.

For many renters, the cost-of-living emergency has already reached crisis point. Households without a mortgage have been falling behind on credit card and auto loan payments at increasing rates, according to the same report. That trend is likely driven by tenants struggling to keep up with rent, analysts say.

And soaring rents are rapidly spreading to the last few affordable areas of the country. Alberta recorded annual rent inflation of 16.2 per cent in April, nearly twice the national rent inflation of 8.2 per cent, according to the Statscan data.

And a different rental survey showed double-digit rent increases have also reached Saskatchewan. The province saw annual rental growth of 18 per cent in April, according to a report by real estate research firm Urbanation and rental platform Rentals.ca, which measures asking rents on vacant units.

There’s little hope of those rent pressures easing any time soon. The number of people in Canada aged 15 and older grew by another 411,000 in the first four months of the year, according to Statscan data.

– Erica Alini

9:55 a.m.

How economists are reacting to today’s inflation report

Here is a snapshot of how economists are reacting:

Andrew Grantham, senior economist, CIBC Economics

“Today’s data should have provided the all-clear on the inflation front that the Bank of Canada needed to start cutting interest rates in June. While headline CPI was in line with consensus expectations, rising 0.5 per cent on the month for an annual rate of 2.7 per cent (down from 2.9 per cent), we saw continued softness in most core measures of inflation, including CPI-trim and CPI-median. ...At the time of the April interest rate decision, the Bank of Canada Governor stated that policymakers were encouraged by recent subdued inflation readings, but needed those to persist for longer before cutting interest rates. Since then we have received two more months of data pointing to tame underlying inflation, for a total of four in a row, and because of that we continue to forecast a first rate cut at the next meeting in June.”

Olivia Cross, North America Economist, Capital Economics

“The fourth consecutive 0.1-per-cent m/m average increase in the Bank of Canada’s preferred core price measures in April will give the bank confidence that the further easing in core inflation is being sustained. That progress means there is a strong possibility of a June rate cut, although the continued resilience of the labour market means the bank may be equally comfortable waiting until the July meeting, allowing it to observe two more months of inflation data.

Markets raise bets of June BoC rate cut after inflation data

The muted monthly gains pulled the annual rates of CPI-trim and CPI-median down to 2.9 per cent and 2.6 per cent, respectively, and the average three-month annualized rate was just 1.6 per cent. That said, the six-month annualized rate was still 2.4 per cent, so it may still be too soon for the bank to conclude that its job is done. … The data today further reinforce our view that markets are underestimating the degree of policy loosening that is likely over the next 12 months.”

Royce Mendes, managing director and head of macro strategy at Desjardins Securities

“Canadians look likely to get a small dose of rate relief in the coming weeks. With headline inflation decelerating to 2.7 per cent in April from 2.9 per cent in March and core measures also moving in the right direction, Canadian central bankers should have the evidence they need to begin easing monetary policy.

Statistics Canada even went as far as to call it a broad-based deceleration. … While the market still seems somewhat hesitant to fully commit to a rate cut in June, we see the latest inflation data as enough for the Bank of Canada to begin a gradual easing cycle at its next policy announcement.”

Douglas Porter, chief economist, BMO Capital Markets

“Chalk another one up for the doves, with four consecutive tame CPI readings to start 2024. There is really no debate that monetary policy is tight in Canada, and that it is now consistently weighing on underlying inflation. The key question for the BoC is whether inflation has tamed sufficiently to now start reducing the degree of restrictiveness. We believe that the door is open for a BoC rate cut, and we have been leaning to a June move for the past six months. But it remains a close call, and when the bank does eventually move, it will be gradual with a highly patient Fed acting as a limiter on how far and how fast Canadian rates can fall.

Read the full roundup of economist and market reaction.

– Darcy Keith

9:45 a.m.

Latest inflation data could get the ball rolling on BoC rate cuts

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The Bank of Canada has been sitting tight for months, pleased with the downward course of inflation but cautious about cutting interest rates too soon. The latest data from Statistics Canada may be just what the central bank needed to see to get the ball rolling on rate cuts.

“We are seeing what we need to see, but we need to see it for longer to be confident that progress toward price stability will be sustained,” BoC Governor Tiff Macklem said after the bank’s last rate decision in early April, where it held its policy rate at 5 per cent for the sixth consecutive time.

Since then, Statscan has delivered two more encouraging months of inflation data. The annual rate of inflation has now been inside the bank’s 1 per cent to 3 per cent target range for four straight months. And crucially, the BoC’s preferred measures of core inflation, which strip out volatile price movements, have continued to trend lower.

This sets the stage for interest rates to start coming down in June. Whether Canada’s central bankers – wary of a misstep in their fight against inflation – move ahead with a rate cut remains to be seen.

The argument for lowering interest rates is certainly growing stronger. Alongside the positive trend in the inflation data, the Canadian economy is showing clear signs of stress amid decades-high borrowing costs. Consumer spending and business investment is muted. Unemployment has risen a full percentage point over the past year, as job creation has lagged population growth.

Other economic indicators the bank is watching, including aggressive corporate price increases and rising wages, have moderated in recent months.

Still, there may be reasons for the bank to stand pat on interest rates until July.

Housing inflation remains high, and the bank doesn’t want to light a fire under the real estate market. It also has to think about what’s happening south of the border with the U.S. Federal Reserve. The Fed is dealing with a stronger U.S. economy and higher inflation, meaning fewer rate cuts are expected this year. The BoC can’t get too far ahead of the Fed in easing monetary policy without putting downward pressure on the loonie.

For their part, financial markets are once again leaning towards a June cut. Before the latest data, interest rate swap markets were pricing a 40-per-cent chance the bank would deliver a quarter-point cut next month, according to Refinitiv data. That rose to around 55 per cent in the minutes after the data was published.

While the April inflation data may be enough to kickstart Canada’s monetary policy easing cycle, don’t expect interest rates to come down fast. Mr. Macklem has warned that interest rates won’t fall as quickly as they rose in 2022 and 2023, and they’re likely to settle at a higher level than in the decade before the pandemic.

– Mark Rendell

9:30 a.m.

Here’s a list of April inflation rates for selected Canadian cities

Statistics Canada also released inflation rates for major cities, but cautioned that figures may have fluctuated widely because they are based on small statistical samples (previous month in brackets):

• St. John’s, N.L.: 2.9 per cent (3.8)
• Charlottetown-Summerside: 2.7 per cent (2.5)
• Halifax: 3.4 per cent (3.6)
• Saint John, N.B.: 3.1 per cent (2.7)
• Quebec City: 3.0 per cent (3.4)
• Montreal: 3.1 per cent (4.1)
• Ottawa: 2.5 per cent (2.1)
• Toronto: 3.2 per cent (3.1)
• Thunder Bay, Ont.: 1.8 per cent (2.3)
• Winnipeg: 0.5 per cent (1.0)
• Regina: 1.2 per cent (1.9)
• Saskatoon: 1.4 per cent (1.8)
• Edmonton: 2.8 per cent (3.3)
• Calgary: 3.6 per cent (4.2)
• Vancouver: 2.7 per cent (2.8)
• Victoria: 2.5 per cent (2.3)
• Whitehorse: 1.8 per cent (2.4)
• Yellowknife: 1.0 per cent (2.2)
• Iqaluit: 1.1 per cent (2.2)

– The Canadian Press

9:25 a.m.

Inflation highlights: Consumers see rent, mortgage interest costs rise

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Here are some highlights from Tuesday’s report.

• The Bank of Canada will be encouraged that several core measures of inflation cooled off in April. The bank’s preferred measures (CPI-median and CPI-trim) rose at an average annual rate of 2.75 per cent last month. This was the first reading below 3 per cent since mid-2021.
• Another measure of core inflation, the CPI excluding food and energy, rose at an annual rate of 2.7 per cent in April, down from 2.9 per cent in March.
• Shelter continues to cast a heavy shadow on the overall numbers, given that the Bank of Canada’s rate hikes have directly affected mortgage costs, while the housing shortage has contributed to higher rents.
• Rents rose 8.2 per cent over the past year. Statscan noted that Alberta rents soared by 16.2 per cent, which it said coincided with strong migration into the province.
• Mortgage interest costs have increased by 24.5 per cent over the past year. While this is weaker than peak increases of roughly 30 per cent, this is partly because of base-year effects.
• Excluding shelter, the CPI rose 1.2 per cent, year over year, in April.

– Matt Lundy

9:15 a.m.

Here’s a list of April inflation rates for Canadian provinces

Canada’s annual inflation rate was 2.7 per cent in April, Statistics Canada says. Here’s what happened in the provinces (previous month in brackets):

• Newfoundland and Labrador: 2.6 per cent (3.1)
• Prince Edward Island: 2.6 per cent (2.6)
• Nova Scotia: 3.1 per cent (3.3)
• New Brunswick: 2.9 per cent (2.6)
• Quebec: 3.0 per cent (3.6)
• Ontario: 2.7 per cent (2.6)
• Manitoba: 0.4 per cent (0.8)
• Saskatchewan: 1.0 per cent (1.5)
• Alberta: 3.0 per cent (3.5)
• British Columbia: 2.9 per cent (2.7)

– The Canadian Press

9 a.m.

Markets raise bets on Bank of Canada June rate cut after inflation report

Today’s inflation numbers haven’t settled the debate in money markets on whether the Bank of Canada will start cutting interest rates next month. Both June and July BoC policy meetings are still very much in play.

Implied probabilities in swap markets now suggest about a 50-per-cent chance the Bank of Canada will cut its key lending rate at its next policy meeting June 5. Immediately prior to the data, those odds were hovering at about 40 per cent. The odds had risen to above 70 per cent at the start of this month, coinciding with an unexpected weak U.S. employment report, before later declining.

Odds of a cut at the July meeting are now up to 83 per cent, from 75 per cent prior to the 8:30 a.m. ET inflation report.

The swaps data suggest market participants are unusually split on their views on an exact date for when rate cuts will begin. But there remains strong conviction that easier monetary policy will arrive this summer.

And just over 50 basis points - or half of one percentage point - of cuts are expected and are fully priced into markets by the end of this year.

Action in other markets suggest today’s inflation numbers were a bit softer than traders were positioned for. The Canadian dollar lost about a quarter of a US cent, trading at 73.19 US cents at last check. The Canada two-year bond yield slipped to 4.214 per cent from 4.2631 per cent.

– Darcy Keith

8:50 a.m.

The new inflation numbers

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Canada’s inflation rate slowed as expected in April, setting up what markets see as a coin-toss outcome at the Bank of Canada’s next interest rate decision in early June.

The Consumer Price Index rose 2.7 per cent in April, down from 2.9 per cent in March, Statistics Canada said Tuesday in a report. This result matched analyst expectations.

On a monthly basis, the CPI rose 0.5 per cent, largely because gasoline prices jumped nearly 8 per cent in April.

Still, this upturn was mitigated by weakness elsewhere. For instance, grocery prices rose 1.4 per cent on an annual basis in April, down from 1.9 per cent in March. During this inflation crisis, grocery prices peaked at annual increases of roughly 11 per cent.

Core measures of inflation, which strip out volatile movements in the CPI, also cooled in Tuesday’s report. The Bank of Canada’s preferred core measures rose at an average annual rate of 2.75 per cent in April, down from 3.05 per cent the previous month.

Heading into Tuesday’s release, traders were pricing in a roughly 45-per-cent chance that the Bank of Canada will lower its policy rate by a quarter-percentage-point at the next opportunity on June 5.

If not then, investors fully expect a rate cut in July.

– Matt Lundy

8:30 a.m.

Canada’s inflation rate cooled to 2.7% in April: Statscan

Canada’s annual inflation rate slowed to 2.7 per cent in April, from 2.9 per cent in March, Statistics Canada reported on Tuesday. This result matched analyst expectations.

– Matt Lundy

7 a.m.

April inflation report to be released today

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Statistics Canada will publish inflation figures on Tuesday morning, and those results could ultimately persuade the Bank of Canada to hold or cut interest rates at the next decision in early June.

The consensus estimate on Bay Street is that Consumer Price Index inflation slowed to an annual rate of 2.7 per cent in April from 2.9 per cent in March. This would mark the fourth consecutive month that inflation has fallen within the BoC’s target band of 1 per cent to 3 per cent. (The bank aims for the midpoint – 2 per cent – of that range.)

The monthly increase in prices is expected to be hefty, in large part because gasoline prices rose by roughly 7 per cent in April. But the CPI also jumped substantially in April, 2023, which is favourable for the year-over-year comparison in Tuesday’s report.

Lately, inflation has been trending lower than expected. The average annual rate of CPI growth was 2.9 per cent in the first quarter. In January, the Bank of Canada projected average inflation of 3.2 per cent in that period.

The situation has improved for several reasons, among them a significant slowdown in price increases for food. In March, grocery prices rose at an annual rate of 1.9 per cent – the weakest increase since mid-2021.

Analysts expect core measures of inflation – which strip out volatile movements in the CPI, such as the recent increase in gas prices – to continue cooling in the April report.

Bank of Canada Governor Tiff Macklem has said he’s encouraged by the downward trend in inflation, but that he wants to see it play out for longer. The central bank wants to ensure that lowering interest rates won’t cause inflation to flare up again.

As of Friday afternoon, traders were pricing in a roughly 45-per-cent chance that the central bank lowers its policy rate – now at 5 per cent – by a quarter-percentage-point at the June 5 decision. If the bank opts to hold, then economists widely expect a cut at the following opportunity, on July 24.

“We have had a June BoC cut pencilled into our forecast since late last year and have stuck to it doggedly,” Bank of Montreal chief economist Doug Porter wrote in a report. “But, full admission: we have the eraser in hand, and it will take a very mild April CPI reading indeed to put it away.”

– Matt Lundy