Canadian Inflation Surges To 23-Month High, Data Shows It’s Higher

Canadians know inflation climbed sharply last month, but there’s a stranger story in the headline data. Statistics Canada’s (StatCan) Consumer Price Index (CPI) rose in April, driven by energy prices. However, a modeling skew in categories like air travel helped suppress the acceleration, despite conflicting industry data. 

CPI’s annual growth accelerated to 2.8% in April, up from 2.4% in March. The move was partially due to the fading impact of a base effect from the removal of the consumer carbon tax. As we previously explained, last year’s removal created a lower base that temporarily suppressed annual CPI. That impact was set to fade last month, even without the latest Middle East conflict. 

CPI ex-gasoline decelerated to 2.0% in April, 0.2 points lower than the March report. Despite the deceleration, only 4 of 8 major components saw annual growth slow last month. That means a minority of components did enough work to drag the ex-gasoline measure lower. Even Big Six banks warned the modeling change will chronically underreport going forward. 

Gasoline Prices Have Climbed 28.6% Over The Past Year

Energy prices were the big story, rising 19.2% from last year after a 3.9% gain in March. It was driven by annual growth in gasoline prices, which came in 28.6% higher. The blow was actually softened by a pause on the federal fuel excise tax, in effect from April 20. That will leave a gap in federal revenue to be filled with debt, thus applying upward pressure on long-term rates. However, that’s a story for another day. 

Canadian Inflation Lowered By Cheaper Travel? About That… 

A small number of categories did a lot of the work in April’s unadjusted monthly CPI move. The 3 biggest contributors to unadjusted monthly growth were gasoline (+8.9%), women’s clothing (+4.4%), and purchase of passenger vehicles (+0.8%). The same release shows CPI ex-gasoline slowed on an annual basis, meaning declines in other categories more than offset the acceleration elsewhere. 

The largest downward pressures were from travel tours (-17.3%), telephone services (-3.6%), fresh vegetables (-3.9%), and air transportation (-3.6%). Not buying those numbers? Good instinct, you probably live in reality and not a StatCan model. Especially when it comes to air transportation, which diverges from a very popular media narrative we’ve been hearing. 

This isn’t a case where the media overstated the problem, but yet another modeling quirk. Industry data shows Canadians saw flight prices climb 12.6% in the month of April, which is higher—not lower. It’s hard to reconcile how StatCan’s air transportation index fell while ticketing data from Kayak simultaneously shows a sharp increase. 

Then there’s telephone services, which hopefully made regular readers giggle. We won’t bore you with the explanation again, but it’s another data point that conflicts with reality. 

Overall, CPI’s acceleration was expected—and arguably smaller than anticipated. Headline CPI is now just 0.2 points below the Bank of Canada’s upper bound, likely causing Tiff & Co. to break a sweat. But the accumulation of measurement quirks is widening the gap between what policymakers want to see and the reality that households live in.