Bank of Canada Governor Tiff Macklem and company should like this report. The Bank of Canada has been reassured by recent inflation reports, but wanted to see the trend continue to be more confident.

They have another month of data to support the cooling inflation trend.

The headline reading - the annual change in the consumer price index - came in at 2.7% in April, down from 2.9% in March.

That was largely expected (matching the Bloomberg consensus). The deceleration came despite a faster rate of gasoline price growth. Excluding gasoline, the CPI rose an even milder 2.5% year-over-year (y/y).

The more important news came from the core measures of underlying inflation, which strip out more volatile price movements. The Bank is keeping an even closer eye on that. The two main measures - median and trim - stayed below 3% y/y and slowed to their lowest since June 2021 (median 2.6% y/y and trim 2.9% y/y).

Core measures are also cooperating when removing year-ago base period effects. The trim measure rose at an annualized rate of only 1.8% over March when calculated on a three-month moving average basis. The median measure was up only 1.5% on the same basis. While that’s a slight acceleration from March, it’s the second straight month below 2% for both measures.

Shelter costs remain the key inflation driver. Excluding shelter, annual inflation was only 1.2% y/y last month - the lowest since February 2021. Rents are adding fuel to inflation along with mortgage interest costs.

Grocery prices are still very high, but grew at the slowest annual rate since July 2021 (+1.4% y/y).

Will it be enough for the Bank to cut in June? This is an encouraging report, and we think it’s enough to justify a cut. But, as we’ve noted, the Bank may still choose to proceed very cautiously. It could elect to wait for even more data and pivot alongside a new set of forecasts (which won’t happen until the July 24 Monetary Policy Report). The Bank will no doubt outline outstanding inflation risks including wages, inflation expectations, shelter costs and moving ahead of the U.S. Fed (which tends to weaken the Canadian dollar). It’s a close call, but we are now leaning slightly closer to June. Either way, we believe that the stage is set for a summer cut.

Closer to home, Alberta’s annual inflation rate declined as expected for the second straight month, easing from 3.5% y/y in March to 3% y/y in April.

Energy prices rose at a much slower rate, aided by declines in natural gas prices and a much smaller increase in electricity prices. This is partly due to base period effects, as last year’s electricity rate cap was no longer in effect in April 2023 and rebates were smaller that month. Gasoline prices continued to put pressure on inflation in April as did a jump in rental accommodation costs. Excluding energy and food prices, Alberta’s core inflation rate was 2.6% (vs. 2.7% nationally).