Gordon Isfeld – Financial Post

If the Bank of Canada was looking for justification to finally begin squeezing the trigger on interest rates, it’s unlikely recent inflation numbers brought its target any closer.

While the annual rate of price increases edged up more than expected last month, it was still within the central bank’s comfort zone. The dollar declined after the report’s morning release and closed down 17 basis points at 97.96 cents US.

And despite a string of strong economic numbers – pointing to steady, moderate growth – the latest debt-crisis flare-up in Europe will overwhelm domestic considerations, according to BMO Capital Markets deputy chief economist Douglas Porter. “Look for the bank to maintain its tough talk, but not to act on it any time soon.”

The consumer price index was up 2% in April from a year ago, with increases in all eight of the categories tracked by Statistics Canada.

Last month’s rise put CPI right at the Bank of Canada’s mid-range target of between 1% and 3%. But the 2% reading was slightly higher than the 1.9% average forecast of analysts, which was the same level as March.

The core rate – stripping out volatile items, such as some food and energy products – rose to an annual rate of 2.1% from 1.9% a month earlier. Market expectations were for the core rate to remain at the March level.

“If find it interesting that there is some underlying strength in core inflation, but I don’t think it’s enough to be concerned about at this stage,” Porter said.

Surprisingly, energy costs increased in April at a slower pace than the overall index for this first time since October 2009, with price rises slowing for gasoline, electricity and natural gas.

“Gasoline prices have been rising in recent months, pushing April’s gasoline index to its highest level since July 2008,” StatsCan said. “Nevertheless, the year-over-year increase in gasoline prices in April was the smallest since September 2010, partly due to near-record prices in April 2011.”

In fact, easing energy prices had a dampening effect on the overall number. Once energy costs are removed, CPI actually rose by a slightly higher 2.1% in April from a year ago.

Newfoundland and Labrador had the highest inflation rate last month, at three%. Nova Scotia and New Brunswick were also above the national average, both at 2.6%. The lowest rate was in Alberta, at 0.8%, on falling costs for electricity and natural gas, while British Columbia had an annual increase of 1.6%.

In between were Quebec, at 2.4%, and Ontario and Saskatchewan, both at 2.1%.

Given the uncertain environment coming out the recession, the Bank of Canada has left its trendsetting interest rate at 1%, a near-record low, since September 2010 to help underpin the recovery.

Many economists now expect the central bank to begin gradually raising rates before for the end of the year.

Carlos Leitao, chief economist at Laurentian Bank, said “the reason for those modest rate hikes is purely from a financial stability point of view, not because of inflation and not because the Canadian economy will be so hot that it requires tighter policy, but because the housing market requires some assistance in making sure it does slow down.”

The Bank of Canada’s next interest rate decision will be on June 5.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.
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