Inflation rate rises to 2.9% in March

Higher gas prices fuel increase as some say figure supports predictions of an interest rate cut in June

Canada’s annual inflation rate rose to 2.9 per cent in March on higher gasoline prices, according to Statistics Canada.

The figure met economists’ expectations of a slight rise in inflation from the 2.8 per cent recorded in February, and points to an ever more likely interest rate cut by the Bank of Canada in June, many say.

Excluding gasoline, inflation was 2.8 per cent in March, down from 2.9 a per cent gain in February.

Shelter inflation contributed most to the gain, climbing 6.5 per cent last month — the same rate as February.

Central bankers are looking for signs of easing in “core” measures of inflation, which exclude temporary changes in total CPI and better reflect the underlying inflation trend, as the Bank of Canada said it needs to see inflation on a “sustained” path to its two per cent target before cutting rates.

All core measures of inflation fell on a year-over-year basis last month, the agency reported.

“The March inflation data certainly fit with the trend of downward momentum in core inflation seen so far this year,” Olivia Cross, economist at Capital Economics, wrote in a note to clients. “There is a growing chance of the Bank cutting interest rates at its next meeting in early June.”

The bank will also be considering the April inflation reading before meeting on June 5.

Gasoline prices climbed 4.5 per cent in March after an 0.8 per cent rise in February, mainly due to geopolitical tensions in the Middle East leading to soaring crude oil prices globally.

Mortgage interest costs rose 25.4 per cent last month, following a 26.3 per cent increase in February. Last week, Bank of Canada Gov. Tiff Macklem emphasized that the core inflation data exclude the extreme effects of mortgage interest costs, which are directly impacted by the central bank’s policy interest rate.

But they still account for rent and other housing costs.

Rent prices ticked up to 8.5 per cent in March versus 8.2 per cent the month prior. Statistics Canada said the current interest rate environment is a main factor pressuring rents, as potential homeowners are being priced out of the housing market.

Clothing and footwear prices also rose month-over-month, though it’s normal to see an increase in prices for these goods at this time of the year, the agency noted.

The good news is that food prices “are now much less of an inflationary force than a year ago,” said Douglas Porter, chief economist at BMO. Grocery inflation cooled to 1.9 per cent from year ago levels, while overall food inflation fell to three per cent compared with 3.3 per cent a year earlier.

Prices for both mobile and internet services are also declining and were the top downward contributors to the data, falling by 20.2 per cent and 15.5 per cent, respectively.

“For the Bank of Canada, this result is likely just good enough to keep them on track for a potential trim in June,” Porter said. “We’ll get one more CPI before that decision, as well as Q1 GDP — and today’s federal budget of course — but odds are leaning to a June move for now.”

One economist, however, emphasized inflation is still too high for comfort and believes the bank will not cut in June.

“With inflation still at the top of the BoC’s range, we expect the bank will want to see a bit more confirmation before taking rates lower and lean towards a July cut,” Leslie Preston, senior economist at TD, wrote in an emailed note.