Canadian Consumer Price Inflation - May 18, 2012

Canadian CPI inflation registered 2.0 per cent (year-over-year) in April, a 0.1 point increase from March inflation of 1.9 per cent. The rise in consumer prices was led by transportation costs, including a 3.3 per cent rise in gasoline prices. In fact, Statistics Canada's gasoline Index reached a 4 year high in April. The Bank of Canada's core inflation measure, which excludes food and energy prices, rose 2.1 per cent in April, up from 1.9 per cent in March. Consumer prices in BC were 1.6 per cent higher in April (year-over-year), matching the increase in March.

Today's CPI report, in combination with very strong Canadian employment growth in March and April, lends further support to the Bank of Canada's case for raising interest rates this fall. We anticipate at least one 25 basis point increase in the Bank of Canada's overnight rate between October and December this year. The one factor potentially delaying a rise in rates could be an increasingly likely Greek exit from the European Monetary Union. Such an event may roil financial markets enough to put BoC rate hikes off the table.

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