Canadian inflation: more of the same

To the surprise of precisely no-one, Canadian consumer prices continued to rise sharply in March. Data released by Statistics Canada today show that headline CPI (not seasonally adjusted) rose 1.4 percent month-over-month, the largest increase since January 1991. This bumped the year on-year-increase from 5.7 percent in February to 6.7 percent in March, the biggest rise since, you guessed it, January 1991. 

Energy and food prices, probably the two items that most Canadians pay the greatest attention to on a daily basis, continued to lead the way higher. Gasoline prices surged 11.8 percent in the month, bringing the increase in the last two months alone to almost 20 percent and the year-on-year rise to just under 40 percent. Prices for food purchased from stores rose 8.7 percent from a year ago, the biggest rise since 2009. Excluding food and energy, the year-on-year rise in CPI was 4.6 percent, but this offers little solace to policymakers, given that all eight of the major subcomponents tracked by StatsCan rose in the month.  

Nor is there any consolation to be found in the Bank of Canada's three preferred measures of core inflation. All three moved higher in the month. The most badly-behaved of them, CPI-trim, now stands at 4.7 percent, and the mean increase for the three is now close to 3.8 percent. 

There is little relief in sight. Looking just at gasoline, here in Ontario we saw prices at the pump rise more than 10 percent in just four days last week -- and that, ominously, was the week in which StatsCan collected its CPI survey data for April. Higher fuel prices quickly spill over into all kinds of other costs, so the April CPI data, due on May 18, are likely to be ugly.

It's no surprise that the steady rise in inflation is becoming a major political issue, especially with the contest to identify a new leader of the Conservative Party starting to heat up. The apparent leader in that race, the cartoonishly right-wing Pierre Poilievre, has coined the hashtag #justinflation, which leaves little doubt about who he blames for the current situation. It's an absurd accusation, given that price pressures are equally evident all round the world, but it seems to be working politically, even if there is effectively nothing that Justin Trudeau can do about it.

Sad to say, there's not much that the Bank of Canada can do about the underlying causes of inflation either. However, they can and must do whatever it takes to prevent inflation expectations from moving far above the 2 percent inflation target. That implies aggressive rate hikes in the months ahead, and that prospect is starting to lead some economists to speculate about a recession in Canada, possibly as early as 2023.  Happy days!