interest-rates-business

Canada’s annual inflation rate climbed to its highest level in two years, reaching 2% in April, as unusually big jumps energy prices—particularly gasoline and natural gas—helped push up consumer prices.

The steep 0.5 percentage point increase from the previous month put the annual rate back at what the Bank of Canada considers the optimal level.

Given that inflation was as low as 0.7 per cent as recently as October, the dramatic climb in recent months would normally be seen as cause for the central bank to start interest rate increases in order to keep consumer prices from overheating.

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But governor Stephen Poloz has already cautioned that he will “look through” the current rise in inflation as being a temporary phenomenon driven by consumer items related to energy.

The better bellwether of inflation, Poloz has said, is currently the core inflation index that excludes volatile items such as gasoline and some fresh fruits and vegetables, and that remains well contained at 1.4% in April.

Energy was the main driver in the increase in the annual headline rate, with gasoline costing 6.6% more in April than a year ago, natural gas 26.6% more, and electricity coming in 4.6% higher.

Price variations were modest for most other consumer goods which suggests that inflation remains well in check.

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Food, which is a key component in the basket of goods and services Statistics Canada tracks to measure inflation, rose 1.9% from a year ago, a pick-up from March’s 1.5% reading.

On a month-to-month basis, consumers paid 0.3% more than they did in February.

Most analysts and the central bank don’t expect underlying inflation will return to the desired 2% until early in 2016, about the time markets expect the central bank will begin increasing interest rates to keep inflation in check.

Meanwhile, shelter costs advanced 3.3%, transportation costs increased 2.8% and consumers paid 1.5% more for automobiles in April than they did a year ago. Tobacco products jumped 8.2%, largely related to the tax increase announced in the federal budget in February.

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But there were also price decreases registered, including a drop of 3.7% for hotels, 1.3% for women’s clothing, 3.2% on prescribed medicines, 4.5% for digital computing equipment and a three per cent dip in prices for household appliances.

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Regionally, British Columbia registered the biggest increase in the annual rate, rising from 0.1% in March to 1.5% in April.

Inflation in Alberta went the other way, falling from 3.9% in March to 2.7% in April.

Originally published on Advisor.ca

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