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The Quick Take: May 18, 2018

Gasoline Prices Drive Inflation Higher

Alicia Macdonald
Principal Economist
National Forecast

“Core inflation remained firm in April while growth in the overall CPI decelerated to a 2.2 per cent pace. The outlook for inflation continues to evolve in line with the Bank of Canada’s expectations and, as a result, the Bank is expected to continue its cautious approach to reducing monetary stimulus.”

Measures of core inflation remain firm with CPI-trim and median both posting growth of 2.1 per cent in April while CPI-common held steady at a 1.9 per cent increase.

Overall CPI decelerated to a 2.2 per cent pace last month after hitting 2.3 per cent in March.

Similar to last month, growth in headline inflation was influenced by gasoline prices. Excluding the effect of gasoline prices, CPI registered 1.7 per cent growth, down slightly from the 1.8 per cent pace observed last month.

Past interest rate increases continue to push up mortgage interest costs, which were up 3.2 per cent in April, the fastest increase in this component since early 2009.

Statistics Canada also released the latest reading on retail sales this morning and that report showed that sales continue to increase, driven by strength in motor vehicles and parts.

In volume terms, retail sales were up 0.8 per cent in March. However, excluding motor vehicles and parts, retail volumes fell 0.2 per cent. Growth in retail sales volumes also continued to decelerate on a year-over-year basis in March, signalling a slowdown in consumer spending growth this year.

The economic outlook continues to unfold as expected in our latest Canadian Outlook. Given a backdrop of slowing domestic growth and uncertainties on the trade front, we believe the Bank of Canada will remain cautious in its approach to reducing monetary stimulus with just one more rate hike this year in July.

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