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Canadian CPI comes in at 2.7% in April

The Bank of Canada (BoC) continues to make steady progress in the battle against inflation, as the latest report shows the metric dropped to 2.7% in April from 2.9% in March. That’s the lowest reading since March 2021, and also marks the fourth consecutive month that inflation growth has fallen within the central bank’s 1 - 3% target range.

According to Statistics Canada, the Consumer Price Index (CPI) – a measure that tracks price change in a set basket of goods – slowed due to a drop in food costs, which grew at a pace of 1.4% in April, compared to 1.9% the previous month. Costs for services and durable goods also slowed on a monthly basis. 

However gas prices continue to put upward pressure on inflation, with consumers paying 6.1% more at the pump on an annual basis in April, higher than the 4.5% uptick recorded in March. Increasing gas prices were attributed to factors such as “switching to summer blends, higher oil prices due to supply concerns and an increase in the federal carbon levy,” says Statcan.

Mortgage interest costs rise 24.5%

But it’s the high cost of housing in Canada that continues to put the most upward pressure on inflation; mortgage interest costs – reflecting rising monthly mortgage payments – rose 24.5%, marking a 1.2% increase from March. Rent costs rose 8.2%, up 0.5% on a monthly basis.

Overall, though, the BoC’s Governing Council – the team who decides whether the central bank should cut, hold, or hike rates – is likely happy with inflation's progress. In addition to the overall lower headline number, two of the BoC’s preferred measures – called the CPI Median and Trim – also decreased, to 2.6% and 3.2% from March respectively, with the three-month annualized growth trend for both remaining under 2%.

Lower inflation strengthens odds of June rate cut

The new data further bolsters expectations the BoC will be in the position to cut interest rates in its upcoming announcement on June 5th; markets are now pricing in a 50% chance, up from a 40% likelihood prior to the inflation numbers release.

Given the inflation numbers are trending below the Bank’s own forecast of 2.9%, the stage is well set for a cut from its current 5%, writes Randall Bartlett, Desjardins Senior Director of Canadian Economics.

“At 2.7% y/y, headline inflation in April came in well below the Bank’s forecast of 2.9% for Q2 in the April 2024 Monetary Policy Report. Most measures of underlying inflation are now comfortably under 2% as well,” he states in an economic note. “At the same time, real GDP growth is tracking below the Bank’s most recent forecast to start 2024. Taken together, these economic indicators help to reinforce our call that rate cuts are likely to begin at the Bank of Canada’s upcoming June interest rate announcement.”

RBC Economist Abbey Xu also writes that cooling in the BoC’s “preferred ‘core’ measures”, combined with the dropping employment rate and per-capita GDP will further slow the economy on an ongoing basis, which further supports RBC’s own call for a June cut.

“The case for interest rate cuts from the Bank of Canada continues to build, with today's report in line with our own base case for a first cut in June,” she writes.

It’s anticipated that the BoC will lower its trend-setting Overnight Lending Rate, which acts as the benchmark for Canada’s prime rate – and by extension, variable mortgage rates – between 0.50% - to 0.75% by mid 2024. This will usher in some relief for borrowers, including mortgage rate shoppers to credit cards and line of credit holders.

While that’s great news for those holding debt, savers should in turn prepare for lower deposit rates, which are also set by the BoC’s benchmark; those with high interest savings accounts and GICs, for example, can expect to earn less on their nest eggs once the BoC moves into cutting mode.

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Penelope Graham, Head of Content

Penelope has over a decade of experience covering real estate, mortgage, and personal finance topics and her commentary on the housing market is featured on both national and local media outlets.