Canadian households are dealing with the highest inflation in a generation. Statistics Canada (Stats Can) released Consumer Price Index (CPI) data for April. The agency attributes recent acceleration to food and shelter, which sent growth to the highest level since the early 90s. Some might be calling a top for growth, but that’s not what Bay Street’s top analysts see for the next report.
Canadian Inflation Hits 6.8%, The Highest Rate Since 1991
Canadian inflation climbed once again, although the acceleration was slower than recent months. Annual growth for CPI was 6.8% in April, up just 0.1 points compared to a month before. It was the highest read since September 1991. Put another way — if you’re under 30, you’ve never seen your cost of living rise this fast.
Food and Shelter Drove Inflation In Canada Last Month
Stat Can attributes the bulk of the latest jump to food and shelter prices. Food costs increased 9.7% in April, rising faster than any period since September 1981. The agency notes it was the fifth month the food component was above 5 points. With supply chain disruptions, including export restrictions, it’s unlikely to fall soon.
Most Canadians know shelter costs are rising, but CPI isn’t rising for the reason you might think it is. According to the agency, shelter prices increased 7.4% in April, the fastest rate since 1983. The increases were primarily attributed to fuel costs like heating and cooling. Homeowner replacement costs are also at a lofty 13.0% increase, a proxy for new homes.
“The prior boom in home prices is now aggressively working its way into CPI, with new home prices and “other owned accommodation expenses” (mostly real estate fees) the two single biggest drivers last month,” said Douglas Porter, Chief Economist at BMO.
Bay Street Sees The Next Inflation Report Accelerating
Annual growth only accelerated 0.1 points in April, a tenth of the 1.0 point increase to CPI seen in March. While this may indicate growth is slowing, that’s not the take on Bay Street this morning.
BMO Capital Markets warned clients the slow-ish month was just temporary. “… this is the relative calm before another downpour in next month’s report, as gasoline prices are tracking a double-digit increase for May alone,” explained Porter.
National Bank of Canada (NBF) also warned the tight labor market is an inflation risk. “In an environment where the labor market is extremely tight with the unemployment rate at a record low, workers are well-positioned to ask for compensation, which should translate into relatively high inflation in services,” said Matthieu Arseneau, NBF’s deputy chief economist.
Adding, “For these reasons, the Central Bank must continue its fast-paced process of normalizing interest rates, which are still far too accommodating for the economic situation.”
High inflation becomes a larger and more difficult issue to tackle as it persists. Once wages begin to adjust to inflation levels, the “transitory” potential is eliminated. Higher wages also tend to increase consumer prices, which can drive more inflation. Exiting an inflation spiral is very difficult, and an issue even RBC’s top brass has warned about.