Gas prices push inflation rate up to 2% in April

By Special to MoneySense on May 23, 2014
Estimated reading time: 2 minutes

The annual rate is back at what the Bank of Canada considers the optimal level.

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OTTAWA – Canada’s annual inflation rate climbed to its highest level in two years, reaching 2.0 per cent in April, as unusually big jumps energy prices — particularly gasoline and natural gas — helped push up consumer prices. The steep 0.5 percentage point increase from the previous month put the annual rate back at what the Bank of Canada considers the optimal level. Given that inflation was as low as 0.7 per cent as recently as October, the dramatic climb in recent months would normally be seen as cause for the central bank to start hiking interest rates in order to keep consumer prices from overheating. But governor Stephen Poloz has already cautioned that he will “look through” the current rise in inflation as being a temporary phenomenon driven by consumer items related to energy. The better bellwether of inflation, Poloz has said, is currently the core inflation index that excludes volatile items such as gasoline and some fresh fruits and vegetables, and that remains well contained at 1.4 per cent in April. Energy was the main driver in the increase in the annual headline rate, with gasoline costing 6.6 per cent more in April than a year ago, natural gas 26.6 per cent more, and electricity coming in 4.6 per cent higher. Price variations were modest for most other consumer goods which suggests that inflation remains well in check. Food, which is a key component in the basket of goods and services Statistics Canada tracks to measure inflation, rose 1.9 per cent from a year ago, a pick-up from March’s 1.5 per cent reading. On a month-to-month basis, consumers paid 0.3 per cent more than they did in February. Most analysts and the central bank don’t expect underlying inflation will return to the desired two-per-cent until early in 2016, about the time markets expect the central bank will begin increasing interest rates to keep inflation in check. Meanwhile, shelter costs advanced 3.3 per cent, transportation costs increased 2.8 per cent and consumers paid 1.5 per cent more for automobiles in April than they did a year ago. Tobacco products jumped 8.2 per cent, largely related to the tax increase announced in the federal budget in February. But there were also price decreases registered, including a drop of 3.7 per cent for hotels, 1.3 per cent for women’s clothing, 3.2 per cent on prescribed medicines, 4.5 per cent for digital computing equipment and a three per cent dip in prices for household appliances. Regionally, British Columbia registered the biggest increase in the annual rate, rising from 0.1 per cent in March to 1.5 per cent in April. Inflation in Alberta went the other way, falling from 3.9 per cent in March to 2.7 per cent in April.