Canadian Inflation Heads In The Wrong Direction, Broad Based Growth

Canada just lost some progress on the war against inflation. Statistics Canada (Stat Can) released the Consumer Price Index (CPI) showing a mild acceleration for inflation in March. While minor, the move was broad based, primarily being driven by energy and shelter costs.

Canadian Headline Inflation Saw Broad Based Acceleration

Canadian inflation is heading in the wrong direction. Headline CPI saw annual growth accelerate to 2.9% in March, an increase of 0.1 points from the previous month. Monthly growth by itself was a whopping 0.6%, more than 3x larger than the target rate’s average monthly growth. 

Canadian Headline Inflation Showed Mild Acceleration

The 12-month percent change to the consumer price index (CPI).

Source: Statistics Canada.

To complicate things further, the agency notes this move was “broad based” acceleration. Despite this, a number of analysts attributed the growth to just a few areas… apparently disagreeing about the broad based move. 

Gas Prices Surge, No Longer A Drag On Inflation

Energy prices were a major contributor to rising inflation, gasoline in particular. Gas prices rose a whopping 4.9% in March alone, and prices are now 4.5% higher than last year. Annual growth was only 0.8% in February, helping to artificially lower the pressure. The increase was attributed to supply cuts, geopolitical tensions, and voluntary production cuts. 

Shelter Continues To Be A Significant Driver of Inflation

Shelter, the largest major CPI component, is stable but still higher than normal. Annual growth was reported at 6.5% in March, the same level reported a month before. Breaking that down, annual growth for mortgage interest (+25.4%) pulled back, while rents (+8.5%) accelerated slightly. 

Canadian Shelter Cost Index

Annual growth of various segments in the CPI shelter component.

Source: Statistics Canada.

The biggest takeaway was related to annual growth of homeowner replacement costs (-1.0%). This is essentially the cost of building a new home, and while it’s good news that it fell—it was less than the decline in February (-1.4%). At negative growth, this segment is currently moderating headline inflation. As the decline gets smaller, so does its ability to help inflation moderate. In addition, this might imply the stimulus the federal government is delivering to builders is having an inflationary impact, doing the opposite of the intended goal of creating affordable housing. 

As of this morning, most analysts reiterated their calls for a mid-year rate cut. Stat Can additionally stated they’ll be updating the basket weights in June.   



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  • Kate Wright 1 month ago

    It doesn’t matter what inflation is really reported at, since the gov will adjust the model to ensure they pay less to borrow than anywhere else. It’s perpetual.

    • Omar 1 month ago

      They can keep gaming it but the fact of the matter is going to be a weaker dollar and higher costs will be felt. The USD made a huge jump against CAD.

  • Jeff 1 month ago

    We’re going higher not lower, mark my words.

  • Susan Stewart 1 month ago

    Is “updating basket weights” a StatsCan euphemism for artificially making the inflation numbers look better while Canadians continue to feel the pinch. What will they substitute this time? Steak .. hamburger .. Kraft dinner?

    • Andrew Baldwin 1 month ago

      No, it’s not. The basket weights updated relate to upper level aggregates, and, as the name suggests, don’t drill down deep into expenditure detail. Fresh and frozen beef is an upper level aggregate, so steak and hamburger are lumped together. However, kraft dinner would be in a different upper level aggregate, so the basket update would pick on shifts in relative expenditures between them. It’s not a scam. Moving to annual basket updates from biennial basket updates was a good reform, even though its effect is to show a lower level of inflation than if biennial basket updates were retained. The ideal would be to have something like the Swedish CPI, where the May 2024 to April 2025 fiscal year was not calculated using a 2023 basket, but the 2024 calendar year was calculated using a 2023-2024 basket. Someday, no doubt, that’s what will happen. If it really bugs you, and it should bug you at least a little, perhaps you could move to Sweden.

      • Troy 1 month ago

        No, the upper weights have shifted too. Shelter increased 3 points.

        There’s also the fact mortgage costs have increased in weight, amplifying the slowdown in interest growth.

        Mortgage interest isn’t even included by most countries since it’s a capital expense, not an a typical consumer expense.

    • Andrew Baldwin 1 month ago

      No, Susan, it’s not. The basket update referred to affects upper level aggregates, at a fairly coarse level of detail. There is no hamburger or steak. They are both part of the upper level aggregate fresh and frozen beef. However, basket shifts from 2022 to 2023 among upper level aggregates would be reflected when the update becomes effective with the May update. The move from biennial basket updates was a good reform, even if it leads to lower measured inflation rates. The ideal would be something like the Swedish CPI, where the 2024 inflation rate would ultimately be based on a 2023-2024 basket. If it had wanted to, Statistics Canada could already have done something like this by now, but it is under no pressure to make the change. This is something that the Bank of Canada should be lobbying for, but isn’t.

  • Cruz james 1 month ago

    Let’s be real. The first time buyer rules are to help developers struggling to sell condos, by increasing the overall interest that buyers pay substantially.

  • Jay 1 month ago

    The last four years 100 *1.05*1.08*1.04*1.03 = 121.47408 (21% price increase from pre-pandemic). More to come once USD beats down the CAD when US FED need to raise to fight 2nd round of inflation.

    It’s the Loonie or the HB. Which will get thrown under the mega bus by the BoC?

  • Andrew Baldwin 1 month ago

    The operational guide as the Bank of Canada has arbitrarily redefined it early after the 2021 renewal agreement that was supposed to define it for the next five years, went to 3.0% in March, from 3.1% in February. The Bank of Canada may regret now taking CPI-common out of the troika with CPI-median and CPI-trim, as by the old definition the operational guide would be showing 2.9% inflation for March, so both the headline inflation rate and operational guide would be lower than the Bank of Canada’s upper bound. Deep thinkers like Doug Porter for some reason have simply ignored that the Bank of Canada’s operational guide, CPIX, until the 2016 renewal agreement, went from 2.1% in February to 2.0% in March, so it is the first of the Bank of Canada’s core measures to hit the 2.0% inflation target. This is hardly surprising given that the mortgage interest cost index, excluded from the CPIX, is still showing a 25.4% inflation rate in March 2024, down from 26.3% in February. What is really surprising, looking back, is that both Liberal Finance Minister Bill Morneau and Bank of Canada Governor Stephen Poloz ever would have approved of a reform that made the Bank of Canada literally the only central bank in the world whose preferred core inflation measure is sensitive to mortgage rate changes. This should have been rectified with the 2021 renewal agreement but wasn’t. Anyway, Finance Minister Chrystia Freeland has made her own bed, so now she has to lie in it.

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