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A customer fills up at a Toronto gasoline station. (Fred Lum/Fred Lum/The Globe and Mail)
A customer fills up at a Toronto gasoline station. (Fred Lum/Fred Lum/The Globe and Mail)

Inflation hits 2% for first time in two years, dampens rate-cut talk Add to ...

Canada’s annual inflation rate rose to the central bank’s 2 per cent target in April for the first time in two years, Statistics Canada said on Friday, further dampening talk of a cut in interest rates.

The jump from 1.5 per cent in March was exactly as expected in a Reuters survey of analysts, as was the 0.3 per cent monthly rise in prices from March.

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Energy prices rose 2.4 per cent on the month, with natural gas jumping a further 8.2 per cent after a 10.9 per cent hike in March and gasoline up 2.1 per cent. The fact that the 0.2 per cent monthly price decline in April 2013 no longer figured in the calculations also boosted the annual rate.

Bank of Canada Governor Stephen Poloz has flagged low inflation as one of the biggest risks facing the economy and has insisted a rate cut was as likely as a rate hike, but Royal Bank of Canada strategist Mark Chandler said the central bank would have to tone down the downside risks.

“I think the tone of it will change,” he said.

“They’re not going to make a big change because they’ll have to wait for the next forecast, which will be the following MPR (Monetary Policy Report) in July. So, it’ll be a subtle shift, but they should start to talk about more balanced risks.”

Core inflation, which helps guide the Bank of Canada since it excludes natural gas, gasoline, fruit and vegetables and other volatile items, edged up to 1.4 per cent in April from 1.3 per cent in March, with prices rising 0.2 per cent on the month. Both figures again matched the median forecasts in a Reuters survey.

The Bank of Canada, which tries to keep overall inflation in the range of 1 to 3 per cent, said last month it expected inflation to be at 2 per cent on a sustained basis starting in the first quarter of 2015.

“It is ... notable that from the moment Governor Poloz fretted about ‘too-low-for-comfort’ inflation at the start of the year we’ve had pretty much a one-way trip north,” said Doug Porter, the Bank of Montreal’s chief economist.

“In fact, Canada is now toward the upper end of inflation tables in the industrialized world, and you’re hard-pressed to find another industrialized economy with inflation higher than Canada and we’re right in line with the U.S.,” Porter said.

“So the governor can hardly suggest Canadian inflation is notably low. It really isn’t any more.”

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