In a surprising reversal of a downward trend, Canada's inflation rate increased to 4.4 percent in April, according to the country's national statistical agency. This slight uptick of 0.1 percentage points from the previous month's rate marks a shift after 10 months of steady decline since the peak of 8.1 percent in June 2022.
Desjardins analyst Royce Mendes noted that the slowdown in Canadian inflation may have been a false indication, as the April figure exceeded consensus expectations. Mendes expects the central bank to adopt a hawkish stance and focus on curbing inflation, potentially leading to further interest rate increases. However, Mendes cautioned that data can be volatile, and today's reading alone may not solidify the decision for further tightening.
On the other hand, RBC Economics' Claire Fan suggested that underlying price pressures are likely to ease, leading the Bank of Canada to remain on the sidelines for the rest of the year.
Statistics Canada reported that the increase in average consumer costs was mainly driven by higher year-over-year rent and mortgage expenses. The initiation or renewal of mortgages at higher interest rates has also contributed to increased rental demand.
While prices for groceries rose at a slower pace in April, with smaller increases in the prices of fresh vegetables, coffee, and tea, the deceleration was balanced by higher prices for fresh fruit, particularly oranges. Additionally, prices for passenger cars and trucks saw an upward trend.
However, the costs of gasoline and other fuels, childcare, and computer equipment experienced a decline.
In recent meetings, the Bank of Canada decided to maintain its key lending rate at 4.5 percent. Earlier this year, it became the first major central bank to pause its aggressive monetary policy after eight consecutive rate hikes.
