OTTAWA – Canada’s annual inflation rate rose faster than expected in April, official data showed on Wednesday, and analysts warned that rising car and gasoline prices could stem the trend, putting pressure on the central bank to tighten policy quickly.
Headline annual inflation hit 6.8% in April, data from Canada shows, slightly ahead of analysts’ forecasts that it would remain flat at 6.7%, instead of hitting a 6.9% injury in January 1991. This was Bank of Canada’s 1-3% control range for the 13th consecutive month.
Food and housing prices have risen at an unprecedented rate since the early 1980s, when petrol prices have slowed slightly since March. Excluding food and energy, inflation was steady-heavy 4.6%.
Doug Porter, chief economist at BMO Economics, said: “Inflation is spreading far and wide, and there is a clear risk of it getting stuck.” “Apart from the deep shake of oil prices in the coming weeks and months, we expect the worst to come.”
Porter, in a note, said inflation could cross 7% in May, the highest in nearly 40 years, citing record high gasoline prices per month and statistics showing changes in how Canada tracks the impact of used car prices.
With its May release, Statscan will shuffle its baskets and begin using more accurate methods to track used car prices, which have skyrocketed due to supply chain disruptions leading to rapid global price acceleration with geopolitical conflict. This has forced central banks to tighten monetary policy more quickly than planned.
“They need to make sure it doesn’t morph into an inflation spiral,” said Jimmy Jean, chief economist at the Desjardins Group, the Bank of Canada’s Inflation Challenge Bank.
“So the way they communicate, the next steps will be important here,” he added.
Last week, Bank of Canada Deputy Governor Tony Gravel acknowledged that the 1% policy rate was “very stimulus” and reiterated that exclusion rates need to be higher to support the economy during an epidemic.
The central bank is widely expected to raise its second 50-basis points on June 1, and the money market is betting that the policy rate will be around 3% by the end of the year.
But Canada’s high debt-to-income levels and over-heated property market mean banks need to be cautiously tough.
“It’s a kind of fine line,” said Darcy Briggs, a portfolio manager at Franklin Templeton Canada. “The trick is to try to reduce inflation without causing too many disasters. But it’s easier said than done. “
The Canadian dollar is trading down 0.2% at 1.2835, or 77.90 US cents.
(Reporting by Julie Gordon in Ottawa; Additional reporting by Dale Smith and Steve Shearer in Ottawa, Nicola Seminadar in Toronto and Shakib Ahmed in New York; Editing by Angus McSowan, Mark Porter and David Gregorio)