Canada March CPI edges up; easing core inflation keeps June rate cut hopes alive

OTTAWA — Canada’s annual inflation rate ticked up as expected to 2.9 per cent in March, but the central bank’s closely watched measures of underlying price pressures eased for a third straight month, data showed on Tuesday, reviving bets for a June rate cut.

The acceleration in headline inflation, which matched the median forecast of analysts polled by Reuters, was driven by costlier gas at the pump as supply concerns and voluntary production cuts pushed global crude prices higher, Statistics Canada said. Excluding gasoline prices, inflation slowed to 2.8 per cent from 2.9 per cent in February.

Inflation has stayed under three per cent since January and is in line with the Bank of Canada’s forecast for it to remain near that level in the first half of 2024.

Month-over-month, the consumer price index rose 0.6 per cent, the largest increase since July 2023, but less than a forecast 0.7 per cent gain.

“I wouldn’t say it’s quite as good as the prior two months but still was no worse than expectations,” said Doug Porter, chief economist at BMO Capital Markets.

“Perhaps most encouraging is we did see some moderation in most of the major measures of core,” Porter said. “We think that a June rate cut is possible.”

After the data, money market saw a roughly 55 per cent chance of a June rate cut from a 44 per cent chance earlier. The Canadian dollar fell to a fivemonth low against the U.S. dollar after the inflation data. It was last at $1.3837 or 72.27 Canadian cents per U.S. dollar

The central bank, trying to cool inflation to a two per cent target, has kept its key interest rate unchanged at a near 23year high of five per cent last week but said a cut in June was possible if the cooling trend in inflation is sustained.

Cpi-median and Cpi-trim — the bank’s preferred measures of underlying inflation — fell more than expected. Cpimedian slowed to 2.8 per cent from three per cent in February while Cpi-trim decreased to 3.1 per cent from 3.2 per cent. Economists had expected Cpi-median to edge down to 3.0 per cent and Cpi-trim to remain at 3.2 per cent.

“The Boc’s preferred core measures ... is confirming that we’re not seeing the same reacceleration in price growth in Canada that we have been seeing in the U.S. in recent months,” said Royal Bank Of Canada’s assistant chief economist Nathan Janzen.

The Bank of Canada, which has kept its key rate on hold for six consecutive meetings, will make its next rate announcement on June 5, after the release of inflation data for April.