Canadian inflation hits highest level since MC Hammer released 2 Legit 2 Quit
Canadian households are facing the highest inflation in a generation. Statistics Canada (Statistics Canada) has released Consumer Price Index (CPI) data for April. The agency attributes the recent acceleration to food and shelter, which propelled growth to the highest level since the early 1990s. Some may call it a peak for growth, but that’s not what top Bay Street analysts see for the next report.
Canadian inflation hits 6.8%, the highest rate since 1991
Canadian inflation rose again, although the acceleration was slower than in recent months. Annual CPI growth was 6.8% in April, up just 0.1 points from the previous month. It was the highest reading since September 1991. In other words, if you’re under 30, you’ve never seen your cost of living rise so quickly.
Food and shelter fueled inflation in Canada last month
Stat Can attributes most of the latest rise to food and housing prices. The cost of food rose 9.7% in April, rising faster than any period since September 1981. The agency notes that this was the fifth month that the food component was above 5 points. With supply chain disruptions including export restrictions, it is unlikely to drop soon.
Most Canadians know that housing costs are going up, but the CPI isn’t going up for whatever reason you might think. According to the agency, house prices rose 7.4% in April, the fastest rate since 1983. The increases were mainly attributed to fuel costs like heating and air conditioning. Homeowners’ replacement costs also show a strong increase of 13.0%, an approximation for new homes.
“The earlier house price boom is now feeding into the CPI aggressively, with new home prices and ‘other owned accommodation spending’ (mainly property charges) being the two main drivers last month,” said Douglas Porter, chief economist at BMO. .
Bay Street sees next inflation report accelerating
Annual growth accelerated by only 0.1 point in April, one tenth of the 1.0 point increase in the CPI seen in March. While this may indicate growth is slowing, that is not the case on Bay Street this morning.
BMO Capital Markets warned clients that the slow month was only temporary. “…it’s relative calm ahead of another downpour in next month’s report, as gasoline prices track a double-digit increase in May alone,” Porter explained.
The National Bank of Canada (NBF) also warned that the tight labor market is an inflation risk. “In an extremely tight labor market environment with record high unemployment, workers are well placed to seek compensation, which should translate into relatively high inflation in services,” said Matthieu. Arseneau, Deputy Chief Economist of the FBN.
Adding: “For these reasons, the Central Bank must continue its accelerated process of normalizing interest rates, which are still far too accommodative for the economic situation.”
High inflation becomes a larger and more difficult problem to solve the longer it persists. Once wages begin to adjust to inflation levels, the “transient” potential is eliminated. Higher wages also tend to raise consumer prices, which can lead to more inflation. Breaking out of an inflationary spiral is very difficult, and it’s a problem that even the top brass at RBC have warned about.