On the surface, the latest inflation numbers look and sound pretty good – it hit 1.7-percent in April which is actually below the central bank’s target rate. But nothing is as simple as it sounds. It turns out the big decline was the result of Ottawa taking off the carbon tax.
When you pull back the curtains a bit further, what we see is that food prices were rising faster than expected… closer to four-percent.
This is largely what had been predicted as the Canadian dollar’s weakness means it costs more to bring in fresh fruit and vegetables from the US. Also, we are starting to see the impact of tariffs on items we purchase at the grocery store.
In short, the price of energy is down but food is up.
Economists are now trying to figure out how the Bank of Canada will respond. Normally, falling inflation would support interest rate cuts but higher inflation for core items such as food weigh against that likelihood. But, with job creation falling in central Canada lower interest rates may be in the cards anyway.
