- Total CPI undershot all estimates, BoC’s preferred core measures are off the lows
- Core goods inflation shot higher, services inflation tanked with a suspect driver
- One report changes nothing in the early days of inflation risk
- Canadian CPI, m/m % NSA, April:
- Actual: 0.35 / 2.8
- Scotia: 1.0 / 3.5
- Consensus: 0.7 / 3.1
- Prior: 0.9 / 2.4
Canadian inflation came in under everyone’s expectations and particularly mine in the spirt of accountability. That’s good news for the inflation watch so far but only at a highly nascent stage for evaluating inflation risk stemming from pass through of pre-war producer prices and pass through from the surge in commodities due to the war.
One category looked fishy to me and played a significant role and I’ll explain why.
Nevertheless, Canada is emerging from a prior soft patch on high frequency core inflation measures, but hardly at a screaming pace thus far. A lot of data still lies ahead and nothing is settled by one report.
Charts 1, 2 and 3 show the m/m seasonally adjusted at annualized rate readings for core measures of inflation. Trimmed mean landed at 1.7% m/m SAAR with weighted median at 2.2% m/m SAAR with no revisions and have both exited the softest readings over prior months. Traditional core CPI (ex-food and energy) was 0% m/m SAAR and was revised down from 0% m/m SAAR in March to –0.75%.
Core goods inflation (ex-food and energy) sharply accelerated last month (chart 4) to post the hottest reading since May 2022. Some of the categories driving core goods inflation included passenger vehicles, clothing and footwear. Services inflation offset that with the biggest drop since July 2020 (chart 5).
What drove services inflation to be so weak as an offset that trashed my call? Well, did anyone notice that travel tour prices are rapidly becoming free? Statcan says so. The drop in the recreation/education/reading category that carries a 10.1% basket weight in CPI shaved about 0.22% off of the headline m/m change that would have been 0.6% if this category were excluded. I thought soaring airfare and passed on behaviour would have driven it upward.
The case for excluding rec/reading/education is centered upon suspect data on one component: travel tour prices (chart 6). Statcan says they plummeted by 69% m/m annualized and seasonally unadjusted. That, in turn, drove the second biggest plunge in m/m seasonally adjusted total travel services prices for like months of April on record (chart 7). This is a tough category to estimate with hard data and I think it’s worth flagging a significant data quality issue.
On breadth, take your pick between charts 8 and 9. It either slipped in y/y terms, or increased in m/m SAAR terms.
Charts 10–21 provide further breakdowns of the basket. Charts 22–25 break down y/y and m/m changes in unweighted and weighted terms. Please also see the accompanying table.
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