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Differences between the Foreign Exchange Market and Stock Market May 23, 2022
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Consumer price index Canada rose to 0.5% – April 2021

News Feed by News Feed
May 19, 2021
in Economics
Reading Time: 2 mins read

The Consumer Price Index (CPI) rose 3.4% on a year-over-year basis in April, up from a 2.2% gain in March. A significant proportion of this increase was attributable to a steep decline in prices in April 2020, as the monthly CPI rose 0.5% in April 2021. On a seasonally adjusted monthly basis, the CPI rose 0.6% in April. Excluding energy, the CPI was up 1.6% year over year in April, following a 1.1% increase in March.

In April 2020, the headline CPI fell 0.2% year over year—the first CPI decline in over a decade. As a result of the broad decrease in prices in 2020, base-year effects continued to have an upward impact on consumer inflation, contributing to the strong acceleration in April 2021.

Base-year effects and the CPI: The COVID-19 pandemic experience

The Consumer Price Index (CPI) is a standard measure of the price of a representative basket of goods and services. The headline consumer inflation is measured as the percentage change between the CPI in the current month (April 2021) and the CPI in a base month or the same calendar month of the previous year (April 2020).

A base-year effect refers to the impact that price movements from 12 months earlier have on the current month’s headline consumer inflation. When a large downward price change in the base month stops influencing—or falls out of—the 12-month price movement, this has an upward effect on the headline CPI in the current month. Conversely, a large upward price change in the base month creates downward pressure on the current month’s measure.

In spring 2020, the global economy was dramatically affected by the COVID-19 pandemic and Canadian consumers experienced a significant decline in prices from February to April 2020. Headline consumer inflation slowed from +2.2% in February 2020 to +0.9% in March 2020 and -0.2% in April 2020, the largest two-month slowdown in year-over-year CPI growth since 1992. The broad decline in prices at the onset of the pandemic, led by energy products, had an upward impact on the year-over-year rate of consumer inflation in April 2021, because significantly lower prices from April 2020 were used as the basis for year-over-year comparison.

For instance, gasoline prices were 62.5% higher in April 2021 compared with April 2020, when prices reached an 11-year low in the early weeks of the pandemic.

The upward impact of these base-year effects will be temporary, as price declines observed in April 2020 will fall out of the 12-month price movement. Users should consider the impact of base-year effects when interpreting the 12-month price movement.

Highlights

Year-over-year consumer price growth (+3.4%) in April rose at its fastest pace since May 2011 amid the third wave of the COVID-19 pandemic, mostly because prices fell sharply during the early months of the pandemic. As some regions extended restrictions to limit the spread of COVID-19, causing employment losses for some Canadians, prices grew 0.5% month over month in April 2021, the same growth rate as in March 2021.

Prices rose in every major component on a year-over-year basis. Transportation prices (+9.4%) increased in April, mainly because of higher gasoline prices compared with April 2020.


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Tags: CAD
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