Canada’s inflation surprisingly slows to 2.3 per cent in March

Ottawa | Reuters — Canada’s annual inflation surprisingly slowed in March to 2.3 per cent, three notches below the prior month, largely helped by lower gasoline and travel tour prices, data showed on Tuesday.

The lower than expected number on inflation slightly increased the chances of a rate cut on Wednesday, although the majority in the market still tilted towards a pause as economists were divided on the course for monetary policy.

The core measures of inflation, which are closely tracked by the Bank of Canada and strip off volatile items, however, stayed elevated, Statistics Canada said.

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“Does (the bank) look in the rear view mirror at still relatively sticky core inflation, or does it look forward knowing that the consumer and business sentiment has crumbled and the economy is likely to weaken in this quarter? That’s a tough call,” said Doug Porter, chief economist at BMO Capital Markets.

“I don’t think anyone’s going to question their wisdom if they decide to trim tomorrow,” he said.

The BoC will announce its monetary policy decision on Wednesday and currency markets have trimmed their bets for a pause in its interest rate cutting cycle to around 52 per cent from 60 per cent before the data was released.

U.S. President Donald Trump’s tariffs on a variety of Canadian imports and Canada’s retaliatory measures are expected to increase prices but also suppress economic growth, putting the central bank in a bind on whether to cut or increase rates.

On a month-on-month basis, inflation rose by 0.3 per cent, Statscan said.

Analysts polled by Reuters had expected the year-on-year inflation rate to remain at 2.6 per cent, and on a monthly basis to rise by 0.6 per cent.

The rate of increase of consumer prices in Canada has shown signs of acceleration after seven months of staying at a level of two per cent or below.

A sales tax break from mid-December to mid-February helped mask the actual price increases. This was evident in the price increase of food and alcoholic beverages, which reversed a previous contraction and jumped in March.

Food prices rose by 3.2 per cent and alcoholic beverages increased by 2.4 per cent on an annual basis.

But this increase was largely offset by a deceleration of 1.6 per cent in the price of gasoline. Without gasoline, the consumer price index rose by 2.5 per cent in March, Statscan said.

“The decline was largely a result of lower crude oil prices amid concerns of slowing global oil demand and slowing economic growth related to the threat of tariffs,” the statistics agency said.

Year over year, prices for travel tours declined 4.7 per cent in March and air travel costs fell 12.0 per cent. The drop in air travel prices coincided with decreased Canadian trips to the United States, Statscan said.

The Canadian dollar was trading down 0.28 per cent at 1.3911 to the U.S. dollar, or 71.89 U.S. cents. Yields on two-year government bonds dropped 4.2 basis points to 2.537 per cent.

One of the core measures of inflation, CPI-median – or the centermost component of the CPI basket when arranged in an order of increasing prices – was at 2.9 per cent in March, same as the prior month.

The other core measure CPI-trim, which excludes the most extreme price changes, slowed a tad to 2.8 per cent, Statscan said.

— Reporting by Promit Mukherjee and Dale Smith; Additional reporting by Fergal Smith and Anna Mehler Paperny.

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