Canadian inflation accelerated more than expected in April, inching closer to the Bank of Canada’s 2-per-cent target in the last reading before policy makers’ June 1 interest-rate decision.
Gasoline costs were the biggest factor in pushing the consumer price index up 1.8 per cent from a year earlier, Statistics Canada said Friday, after a 1.4 per cent annual gain in March. The central bank’s preferred gauge – so-called core inflation, which strips out eight volatile items such as energy – quickened to 1.9 per cent on an annual basis after 1.7 per cent the month before.
Economists had predicted the main index would rise 1.7 per cent and that the core measure would gain 1.8 per cent. From March to April, both measures rose 0.3 per cent, Statscan said.
The April inflation data came just before Statscan said retail sales in March rose the most since 2005, and the reports re-fuelled speculation that Bank of Canada Governor Mark Carney will lift his benchmark interest rate next month from the current 0.25 per cent.
With inflation accelerating and the economy having already recouped about two-thirds of the jobs lost in the recession, a rate hike from the current emergency level would seem to be a slam-dunk. However, turmoil in financial markets as investors grasp for what to make of the still-developing debt crisis in Europe could keep Mr. Carney on hold, economists said.
“The extreme strength in retail sales and the above-expected April CPI reading make the Bank of Canada’s June 1st decision that much more difficult,” Benjamin Reitzes of BMO Capital Markets wrote in a note to clients. “The domestic data are screaming for tighter policy, but Canada doesn’t exist in a vacuum, and global market conditions (plunging stock markets and commodity prices, widening risk spreads) simply cannot be ignored.”’
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Mr. Carney recently scrapped a conditional commitment to stay on hold until July or later depending on inflation, in part because year-over-year core inflation had breached his target much sooner than expected. But he has also said repeatedly that nothing is “pre-ordained.”
In addition, there may have been some distorting effects on the April inflation data. Energy prices were almost 10 per cent higher than a year earlier, when the global economy was still in the grip of a frightening worldwide downturn. Gasoline prices alone were more than 16 per cent higher than a year earlier. Also, natural gas cost 3.3 per cent more than in April, 2009, after having been 22 per cent lower than a year earlier in March.
The cost of buying a car rose 5. 3 per cent in April on an annual basis, Statscan said. The core index was influenced by higher prices for cars as well as auto insurance, property taxes and meals at restaurants, the agency said.
Retail sales rose 2.1 per cent in March, the 10th gain in 11 months, to a record $37-billion, Statscan said.
