Canada Economic Perspectives "April CPI surprises to the downside" Watt

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Canada Economic Perspectives "April CPI surprises to the downside" Watt

to 1.49% in April. We expect the annual rate of core inflation continues to bounce

above and below 2% for much of the year but the continued moderation today is likely

to be a focus for the Bank of Canada despite the increase in headline.

In April, shelter prices, excluding energy, were flat. Elsewhere, transportation excluding

gasoline prices and clothing prices were up 0.6% and 2.2% over the month in April,

respectively. A -2.0% decline in recreation education and reading excluding fuels offset

these increases. That swing in recreation, education and reading prices excluding energy

reflected a strong decline in prices for travel services, with travel tour prices declining -

17% over the month in April. This is a weaker than typical NSA change in April, perhaps

reflecting weaker demand. Given the narrow driver of some the swing lower in the core

measure, the Bank of Canada's preferred core inflation measures moderated to a lesser

degree. But, they both did still decline. The trimmed mean measure fell 0.2 pp to 2.0%

over the year, and the weighted median fell 0.2 pp to 2.1%.

Breadth of inflation pressures narrowed in April

The Bank of Canada (BoC) have signaled a willingness to look through the energy driven

pick up in headline inflation but the key thing they will be watching will be the breadth

of inflation pressures, which narrowed in April. We have two breakdowns of the

inflation basket below. We look at the weighted share of the inflation basket running

within the 1-3% target control range, above 3%, or below 1% on a three-month

annualized and a year-over-year basis. The weighted share of the basket which is

running within the 1-3% target control range on a three-month annualized basis rose