• Top-level consumer prices advanced 0.1% in April—a bounce back from the previous month's 0.1% decline.
• Both measures of core inflation rose in the month, with the Bank of Canada's favoured measure increasing 0.2% and the standard core (excluding food and energy) climbing a sharper 0.4%.
• Top-level inflation rose at a year-on-year (y/y) rate of 1.8% in April, a pickup from the 1.4% advance in March.
• The Bank of Canada's measure of core inflation accelerated to 1.9% y/y, from the slowdown of 1.7% in March, just as we forecasted.
• The more conventional measure of core inflation (excluding food and energy) increased 1.2% y/y, up from 0.9% in March.
• Within the shelter category, accounting for most of the monthly increase in overall prices, natural gas prices edged higher for the second consecutive month, and are now up 3.3% y/y, compared with the 22.4% y/y decline in March.
• On a monthly basis, passenger vehicle prices advanced in April, but food prices declined for the first time in seven months.
• Overall inflation was lifted by the increase in gasoline, up 16.3% y/y, which is slightly softer than the 17.2% y/y leap in the previous month.

Outlook

Canadian inflation pressures picked up in April, as top-level prices increased 0.1%, but both core price measure climbed even higher.

The core rate of inflation (excluding food and energy) quickened from 0.9% y/y in March to 1.2% in April, slightly stronger than the core inflation rate of 0.9% in the United States.

The sharp advance in the Bank of Canada's core rate was related to a sharp uptick in passenger vehicle purchase prices, passenger vehicle insurance premiums, property taxes, and food purchased from restaurants.

In the Bank of Canada's April Monetary Policy Report, the Bank estimates second-quarter 2010 core inflation at 1.9% y/y—on target so far. Likewise, the Bank's overall inflation is estimated at 1.7% y/y, which is also in line with the 1.8% increase for April reported today.

The Canadian dollar, which has been quickly loosing ground for most of this week as global markets deal with the uncertainty related to the debt woes in Greece, fell in response to the inflation data.

Canadian inflation is contained, aided by the consistently high Canadian dollar. Core inflation (excluding the impact of food and energy) rose 1.2% y/y in April, while U.S. prices increased 0.9%. Moreover, top-level inflation in Canada is running at a yearly rate of 1.8%, much more subdued than 2.2% in the United States.

Bottom line: Canadian inflation picked up this month, but is well contained in the Bank's target range. Inflation trends in Canada are running below those in the United States, especially with the consistent rise in the Canadian dollar for over a year. Inflation expectations are proceeding as the Bank of Canada expected. Global market uncertainty is now playing into the Bank's decision to raise rates at the next meeting on June 1. A rate increase is likely, but it may not come next month. We still believe that any material moves by the Bank to adjust rates higher are likely at the end of this year.