MONTREAL ― Canada’s consumer price index dropped sharply in April amid nationwide lockdowns, but prices soared for the goods Canadians were actually buying.
The price index for all goods fell 0.7 per cent in April, and was down 0.2 per cent from a year earlier. That’s the first time Canada has seen a year-on-year deflation in prices since the financial crisis of 2008-09, Statistics Canada said.
But “this was not at all the pricing environment that households faced,” CIBC economist Royce Mendes wrote in a client note Wednesday.
The Consumer Price Index isn’t measuring the actual costs households are facing right now, because the lockdown means they aren’t buying the usual assortment of goods, Mendes said.
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“It’s more important to focus on the goods and services most likely bought during the month to gauge the impact on consumers. Indeed, declines in prices were more prevalent in categories less likely to be in demand such as transportation, accommodations and clothing.
“Of course, there was also a big drag coming from gasoline, though again that’s a product that households weren’t buying as much of in April,” Mendes noted.
Food prices jumped 1.1 per cent in a month and were 3.4 per cent higher than a year earlier. Some items rose by far more, including rice (up 9.2 per cent), pork (up 9 per cent), eggs (up 8.8 per cent) and beef (up 8.5 per cent).
Household products ― some of which were targets of hoarding early in the lockdown ― jumped in price, with cleaning products up 4.6 per cent and toilet paper up 6 per cent.
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“An increase in food prices in April likely hurts more than a drop in gasoline prices helps,” Royal Bank of Canada senior economist Josh Nye wrote.
“While there’s no shortage of uncertainty regarding the future path for the economy and inflation, we expect an ongoing shortfall in demand will keep inflation below 2 per cent even as the effect of lower energy prices fades,” Nye predicted.
Both Nye and CIBC’s Mendes agreed that if deflation persists, the Bank of Canada will likely react by keeping interest rates low for longer, and will likely ramp up “quantitative easing” ― emergency purchases of debt and other assets designed to keep the financial system afloat during the crisis.