Canada’s inflation dips to three-year low as RBA weighs rate hike

Canada's inflation rate fell to a three-year low in April at 2.7% year-over-year, while the RBA citing ongoing inflation concerns.

By Ahmed Azzam | @3zzamous | 21 May 2024

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  • Canada’s inflation rate dropped to a three-year low of 2.7% year-over-year in April

  • The RBA minutes highlighted inflation risks and uncertainty about future rate changes

Canada sees inflation drop

Canada’s inflation rate has reached its lowest in three years, with April's Consumer Price Index (CPI) rising 2.7% year-over-year, down from 2.9% in March. This drop was expected by analysts. When excluding gasoline, the CPI saw a slight decrease from 2.8% to 2.5%.

Core inflation measures also showed a decline. The CPI median dropped from 2.9% to 2.6%, just below the forecast of 2.7%. The CPI trimmed measure fell from 3.2% to 2.9%, meeting expectations, and the CPI common measure decreased from 2.9% to 2.6%, below the anticipated 2.8%.

RBA's rate hike deliberations

Minutes from the Reserve Bank of Australia's May 7 meeting revealed that while a rate hike was considered, the decision was made to keep the cash rate target at 4.35%. The board noted increased risks around inflation and significant uncertainty regarding future rate changes.

The board discussed raising the cash rate if they believed inflation forecasts were overly optimistic. Despite weak aggregate demand, a higher rate might still be necessary if other factors slowed disinflation. However, the decision to hold the rate steady was based on recent economic updates, which did not justify a policy shift. The declining inflation trend remains on track, and the new data did not alter this outlook significantly.