Energy costs push April inflation rate to 10-year high, no relief in sight

April's inflation rose 3.9 per cent due in large part to gas price increases (CP Picture Archive)

LISA SCHMIDT

OTTAWA (CP) - Consumers spent more on trips to the grocery store last month, although it was actually the drive that cost the most. Skyrocketing energy prices sent the annual inflation rate soaring to 3.6 per cent in April, its highest level in a decade, with little relief in sight.

High prices in produce aisles and increased cigarette taxes also helped push up the April rate from a 2.5 per cent annual increase posted in March, Statistics Canada said Thursday.

By far, gasoline prices were the biggest factor in the rise of consumer prices last month, no surprise to anyone who's filled up a tank recently.

"Most of it was gasoline prices," said Mark Lesveque, economist with TD Bank.

"They haven't come down very much since then. May gasoline prices are roughly at the levels that they were in April, so there isn't much relief in the pipeline right now and that is crimping consumer's pocketbooks."

Add to that higher home-heating bills, which have increased nearly 50 per cent over the last 12 months.

"It's not good news for consumers obviously," Lesveque said.

Mario Angastiniotis, senior economist at Standard and Poors MMS, said the surge is slightly exaggerated, since energy prices saw an unusually large decline in April 2000.

"But that's not anything that would have caught anyone by shock, given what's been going on with gasoline prices," he added.

Still, energy prices have risen, on average, by 11.6 per cent since April 2000, accounting for almost one-third of the overall increase in inflation.

More than half of that increase came from natural gas prices, which shot up 49.9 per cent in April compared with a year earlier.

Prices at gasoline pumps rose an average of 8.3 per cent in April, after posting a 3.2 per cent annual decline in March.

"Energy is an ongoing drain on consumer incomes," said Warren Lovely, economist at CIBC World Markets.

"Those ongoing energy pressures have really served as a tax on consumer income and is far from bullish for consumer spending."

Shoppers shelled out more for fresh vegetables and fruit in April, as prices for those items rose 17 per cent and 17.8 per cent respectively. Overall, rising food prices accounted for more than one-quarter of the monthly increase.

While higher energy and food prices spell bad news for consumers, underlying inflation should not sound any alarms with policymakers, analysts said.

The core inflation rate - which excludes volatile energy and food costs and is most closely watched by policy makers - also rose, climbing to 2.1 per cent from 1.7 per cent in March.

It's still well within the Bank of Canada's target range of one to three per cent, and will likely be less of a factor when the bank delivers its next rate announcement May 29.

"I don't think it's going to be much of a problem right now," said Angastiniotis.

"I think given where the economy is at right now, I think the Bank of Canada will focus more on growth than what's going on with the headline CPI," he said.

Analysts are speculating whether the central bank will match the U.S. Federal Reserve's most recent half a percentage point cut, the fifth in as many months.

Federal Finance Minister Paul Martin delivered a revised economic outlook Thursday, forecasting 2.4 per cent growth, down from 3.5 per cent.

The agency also released rates for major cities but cautioned that figures may fluctuate widely because they are based on small statistical samples.

City-by-city figures with the previous month in brackets:

-St. John's, Nfld., 1.2 (1.3)

-Charlottetown-Summerside, 3.3 (2.6)

-Halifax, 2.9 (2.0)

-Saint John, N.B. 2.5 (1.6)

-Quebec, 3.5 (2.3)

-Montreal, 3.7 (2.5)

-Ottawa, 4.5 (3.6)

-Toronto, 4.5 (3.4)

-Thunder Bay, Ont., 4.1 (3.1)

-Winnipeg, 3.5 (3.1)

-Regina, 2.9 (2.7)

-Saskatoon, 2.7 (2.5)

-Edmonton, 2.4 (2.3)

-Calgary, 3.0 (2.9)

-Vancouver, 2.5 (1.1)

-Victoria, 1.7 (0.2)

Here's what happened in the provinces, with the rate from the previous month

in brackets:

-Newfoundland 1.2 (1.2)

-Prince Edward Island 3.5 (2.7).

-Nova Scotia 3.0 (1.9)

-New Brunswick 2.4 (1.7)

-Quebec 3.8 (2.5)

-Ontario 4.3 (3.2)

-Manitoba 3.2 (2.8)

-Saskatchewan 2.8 (2.6)

-Alberta 2.6 (2.5)

-British Columbia 2.3 (0.9)

-Whitehorse 2.3 (2.5)

-Yellowknife 1.3 (1.4)