The Canadian headline consumer price index rose by 0.8% year-over-year in April, following a 1.2% showing in March. The April reading was the weakest since October 2013. The Bank of Canada's core measure rose 2.3%, following a 2.4% increase in March.
Headline inflation remained weak in April as lower energy prices weighed on overall CPI inflation. Further softness in inflation is likely over the next two quarters until the base effect from lower oil prices runs its course. That said, core inflation is expected to remain above the 2% mark, partially buoyed by a lower Canadian dollar. While the Loonie has gained ground in recent weeks, it still remains well below year ago levels and it typically takes four to eight quarters for pass-through effects from higher import prices to be felt.
"Despite core inflation operating above the Bank's 2% target rate, earlier this week Gov Poloz highlighted that underlying inflation is likely hovering around the 1.6%-1.8% range pointing to an economy operating below full capacity. Indeed, while we expect to see an uptick in real GDP growth in Q2, it is still forecast to remain below 2% annualized in Q2, signifying a lack of inflationary pressure from the economy. All told, we expect BoC to remain on hold at next week's fixed announcement date." says TD Economics
