Canada's annual core inflation rate eased for the fourth consecutive month in April, signaling a potential shift in monetary policy in the coming months. Statistics Canada reported a drop in the core inflation measures to an average annual pace of 2.75%, down from 3.05% in March. This decline is slightly below the 2.8% forecasted by economists.
The headline consumer price index (CPI) rose 2.7% year-over-year in April, aligning with expectations and down from a 2.9% increase in the previous month. This marks the fourth straight month of inflation within the Bank of Canada's target range.
Despite this overall decline, the monthly rate of inflation saw a slight uptick, with a three-month moving average rising to an annualized pace of 1.64% from 1.35% in March. This increase, the first since December, may influence the Bank of Canada's decision on a potential rate cut in June.
The loonie weakened following the news, dropping about 0.24% to $1.3658 per U.S. dollar. Canadian government two-year bond yields fell by seven basis points to 4.169%. Market speculation for a June rate cut increased to 60%, up from 40%.
The inflation data will test whether the Bank of Canada views the consistent decline in core inflation as sufficient for a rate cut. Governor Tiff Macklem and his team have indicated that they need to see "further and sustained easing in core inflation" before adjusting rates.
This report is one of the last two inflation updates before the bank's next rate decision on June 5. Economists predict a 25 basis point rate cut, potentially starting an easing cycle.
Mortgage interest costs and rent were the largest contributors to inflation, with mortgage costs jumping 24.5% and rents increasing 8.2%. Excluding shelter costs, the CPI rose 1.2% from last year, down from 1.5% in March. Food and energy prices also saw a slowdown, contributing to the overall deceleration in consumer prices.
Regionally, six out of ten provinces experienced slower price increases compared to March. As the Bank of Canada weighs its next steps, the latest data may provide enough evidence to support a cautious approach to easing monetary policy.
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