The strong Canadian inflation report helps Looney perform better on the G10

In all three key measures, the message to the markets was clear: Inflation in Canada is no longer driven by intense price pressures of a small component, but continues to rise and expand. The news sent the USDCAD to previous European session levels, reversing the previous auction of the dollar, while the Canadian bond rose 3 basis points.

The year-on-year rise in inflation was due to higher food and housing prices, which have not yet disappeared because both components contributed more than two-thirds to the monthly increase. Canadians paid 9.7% more in April for store-bought food compared to last year, the largest annual increase since September 1981.

Within the diet, fresh fruits (+ 10%), fresh vegetables (+ 8.2%) and meat (+ 10.1%) continued to be the most expensive products, while pasta (+19 .6%) and cereals (+ 13.9%) And coffee (+ 13.7%) recorded higher annual price increases. Rising prices of wheat and other grains will continue in view of the war in Ukraine, and this could be exacerbated by poor harvests in the northern hemisphere in the summer.

Fuel and other fuels rose 64.4% year-over-year, while alternative costs for housing increased by 13%. However, the latter probably exaggerates the increase in home prices as it does not combine with lower resale prices. Home prices rose in April, in line with a signal from housing board prices and sales volume data that house prices and sales are falling across Canada.

Commodities, non-durable, with a net worth of zero, made practically the least contribution to total inflation. Durable goods, which represent 14.4% of the consumer basket, fell 0.2% per month, while semi-durable goods, which weigh 6.6%, rose 0.4%.

Easing the pressure on commodity prices is consistent with key corporate sources that an increase in global supply could help reduce inflation. For example, Amazon’s latest revenue call indicates that the US technology company has increased its capacity to respond to demand volatility in 2021. Excessive supply from one of the world’s largest retailers will continue to add to the pressure. Below global inflation until inventories stabilize.

Overall, the April CBI report showed that inflationary pressures in Canada were strong in the second quarter, supporting our view that the Bank of Canada should raise interest rates by 50% for the second consecutive year. Up to 1.5%. Despite signs of weakness such as inflationary pressures on durable goods, for example, the data were generally strong and the limited market reaction was puzzling.

For the most part, inflation data did not deviate much from economists’ expectations outside of key action, as rate markets had already set prices in anticipation of the Bank of Canada raising the base by 50 basis points at the next meeting.

On the other hand, today’s report also highlights that the updated basket weights for the CBI index will be used in the June 22 May report. In addition, StatsCan will replace the previous approach to used car pricing with management data and improve the quality of data by adding a new series on new car prices. Initially, this information will only be calculated on a monthly basis.