Rate of Canadian annual inflation slows in March

The Consumer Price Index (CPI) rose 4.3% year over year in March, following a 5.2% increase in February. This was the smallest increase since August 2021 (+4.1%). On a year-over-year basis, Canadians paid more in mortgage interest costs, which was offset by a decline in energy prices, reported Statistics Canada on Tuesday.

Gustavo Fring

“As a result of the steep monthly increase in prices in March 2022 (+1.4%), base-year effects, notably gasoline prices, continued to have a strong downward impact on consumer inflation, contributing to the year-over-year deceleration in March 2023,” said the federal agency.

“Excluding food and energy, prices were up 4.5% year over year in March, following a 4.8% gain in February, while the all-items CPI excluding mortgage interest cost rose 3.6%, after increasing 4.7% in February.

“On a monthly basis, the CPI was up 0.5% in March, following a 0.4% gain in February. Travel tours (+36.7%) contributed the most to the headline month-over-month movement, largely driven by increased seasonal demand during the March break. On a seasonally adjusted monthly basis, the CPI rose 0.1%.”

“Year over year, prices for food purchased from stores rose to a lesser extent in March (+9.7%) than in February (+10.6%), with the slowdown stemming from lower prices for fresh fruit and vegetables.”

Andrew Grantham, an economist with CIBC Economics, said Canadian inflation continued a steep descent in March, with that flight path likely to continue for a few more months as some of the largest monthly price increases of 2022 drop out of the year-over-year calculation.

“However, with core measures remaining above the 2% target, the Bank of Canada will still be concerned as to where the ultimate landing spot for inflation will be. As such, policymakers will likely maintain a hawkish tone for now, with interest rate cuts not in the cards until early next year,” he said.

Douglas Porter, Chief Economist with BMO Economics, said the Statistics Canada report shows that all roads do indeed point to 3% inflation in the months ahead, with most short-term underlying metrics settling into the low-3% range.

“The key question for policymakers and markets is whether a 4.5% policy rate is acceptably restrictive give those inflation trends? We and the Bank of Canada believe so, but the BoC will need to be patient at that level to push inflation back into the target zone below 3%. Overall, there’s thus not much here to change the near-term outlook for policy. The Bank remains on hold, with a bias to tighten further if necessary,” he said.

Leslie Preston, Senior Economist with TD Economics, said iflation continued to move in the right direction in March, supporting the Bank of Canada’s stand pat rate decision last week (see commentary).

“As outlined in our recent forecast, we expect core inflation to continue to decelerate below 3% y/y in the second half of the year, as does the Bank of Canada,” said Preston.

“However, the persistently high level of demand-sensitive services inflation, or “supercore”, speaks to the challenge Governor Macklem talked about last week in bringing inflation all the way back to 2%. This suggests that the BoC needs to remain vigilant to inflation pressures, and may need to hike again if momentum in the domestic economy does not cool as expected.”

(Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald, covering sports, crime, politics, health, faith, city and breaking news, and business. He works as well as a freelance writer for several national publications and as a consultant in communications and media relations/training. Mario was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)