Canadian Inflation Picks Up to 2% on Trudeau’s Carbon Levies

(Bloomberg) -- Annual inflation accelerated in Canada for a third consecutive month as gasoline costs continue to escalate, in part due to new taxes on energy.

Annual consumer price inflation rose to 2.0% in April, Statistics Canada said Wednesday in Ottawa, up from 1.9% a month earlier. Inflation is now exactly at the Bank of Canada’s target, and was in line with analyst expectations for April. Core measures -- seen as a better gauge of underlying pressures -- ticked down to 1.9%, from 2%.

Key Insights

  • While sharp movements in gasoline prices have generated volatility in Canada’s headline inflation number over the past year, underlying price pressures have largely been stable at near the Bank of Canada’s target. This suggests a largely benign environment for inflation -- neither too strong nor too soft to prompt a move by the central bank.
  • If anything, a weaker economy in recent months may keep pressures in check and limit any upside. This seems to be the view of the Bank of Canada, which has taken a dovish tilt in recent months.
  • April’s numbers were driven higher by a 10% gain in gasoline prices, adding to a 12% jump in March. Statistics Canada cited rising global oil prices, along with new carbon levies that were introduced or increased in six provinces. Beginning April 1, Prime Minister Justin Trudeau’s federal government imposed the tax in provinces that didn’t have a pricing system for greenhouse gas emissions. British Columbia, which didn’t face new federal levies, also hiked its own carbon taxes.
Canadian Inflation Picks Up to 2% on Trudeau’s Carbon Levies

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  • Statistics Canada didn’t provide details on precisely how much the carbon levies added to April inflation. Bank of Canada Governor Stephen Poloz has said the impact on headline inflation would be minimal.
  • On a monthly basis, consumer prices rose 0.4%, in line with analyst estimates.
  • On a seasonally adjusted basis, prices also increased by 0.3%, after a 0.4% gain in March and 0.4% in February. That’s the strongest three-month gain in more than a year.

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