Consumer prices surprised on the upside in April, topping expectations with a 0.7 percent monthly gain that lifted the 12-month rate to 4.4 percent from 4.3 percent, the first acceleration since June 2022. Core prices, excluding food and energy, rose 0.5 percent from March and 4.4 percent from a year earlier. Food prices appreciated 0.4 percent on the month and 8.3 percent year-over-year, and energy was up 3.4 percent and down 4.2 percent, respectively.

On a more positive side, the Bank of Canada's three core measures of inflation all showed evidence of further easing, with the average 12-month rate coming down to 4.7 percent from 5.0 percent in March. The 4.4 percent core rate also marked a slowdown from 4.5 percent in March.

Rent and mortgage costs were a key driver of higher inflation in April. On a monthly basis, gasoline price, up 6.3 percent, was the largest upward contributor, followed by mortgage interest costs, up 1.9 percent and rents, up 0.9 percent. On a 12-month basis, a 28.5 percent surge in mortgage interest cost was the largest upward contributor, followed by a 6.1 percent increase in rents. All eight major categories recorded higher prices in April, both month-to-month and year-over-year. Services inflation was 0.5 percent on the month and 4.8 percent year-over-year, and goods inflation was 0.8 percent and 4.0 percent, respectively.

On a seasonally adjusted basis, the CPI index rose 0.6 percent after 0.3 percent in March, while the core index, excluding food and energy, was steady at 0.3 percent.

Today's report will likely question the pausing mode at the Bank of Canada.

After March's as-expected 4.3 percent rate, which was down substantially from February's 5.2 percent rate, consumer prices in April are expected to ease further to 4.0 percent.

The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly and annual changes in the CPI provide widely used measures of inflation. The policy target measure for the Bank of Canada (BoC), the annual CPI rate can be distorted by swings in the more volatile subsectors so the central bank also monitors an adjusted measure of the CPI that excludes a range of volatile categories in order to get a better handle on underlying trends.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Canada, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

As the most important indicator of inflation the CPI is closely followed by the Bank of Canada. The Bank of Canada has an inflation target range of 1 percent to 3 percent but focuses on the 2 percent midpoint. It uses the CPI and three measures of the underlying rate as the prime inflation indicators. Markets also look at core rate which excludes food and energy.