Canada's March CPI ticks up to 2.9% as core inflation eases

FILE PHOTO: People shop at a grocery store in Toronto, Ontario, Canada November 22, 2022. REUTERS/Carlos Osorio/File Photo

OTTAWA (Reuters) – Canada’s annual inflation rate ticked up to 2.9% in March, as expected, while core inflation measures eased for a third consecutive month, data showed on Tuesday, raising expectations for a mid-year rate cut.

Analysts polled by Reuters had forecast inflation to accelerate to 2.9% from 2.8% in February. Month-over-month, the consumer price index rose 0.6%, the largest increase since July 2023, but less than a forecast 0.7% gain.

The acceleration in the annual rate was driven by costlier fuel at the pump as supply concerns and voluntary production cuts pushed global crude prices higher, Statistics Canada said. Excluding gasoline, inflation slowed to 2.8% from 2.9% in February.

The Bank of Canada (BoC), trying to cut inflation to a 2% target, kept its key interest rate unchanged at a near 23-year high of 5% last week, but said a cut in June was possible if the cooling trend in inflation is sustained.

The Canadian dollar fell to a five-month low against the U.S. dollar after the inflation data. It was last at C$1.3820 per U.S. dollar.

Money market bets for a June rate cut increased to over 50% from 44% before data, according.

“I don’t think it’ll create a big problem for (Bank of Canada). We think that a June rate cut is possible. I still think that’s a reasonable expectation,” Doug Porter, chief economist at BMO Capital Markets, said.

Headline inflation has stayed under 3% since January and is in line with the BoC’s forecast for it remain close to 3% in the first half of 2024.

CPI-median and CPI-trim – the bank’s preferred measures of underlying inflation – fell more than expected. CPI-median slowed to 2.8% from 3% in February while CPI-trim decreased to 3.1% from 3.2%. Economists had expected CPI-median to edge down to 3.0% and CPI-trim to remain at 3.2%.

The BoC increased rates by 475 basis points to a 22-year high between March 2022 and July 2023 and has kept them on hold since for six consecutive meetings in its efforts. The BoC’s next rate announcement is on June 5, and the bank will also have data for April before then.

In March, shelter prices continued to apply upward pressure, with the mortgage interest cost and rent indexes contributing the most to the year-over-year gain in the all-items CPI, Statscan said.

Services inflation accelerated to 4.5% in March from 4.2% February, driven by air transportation and rent, while goods inflation slowed slightly to 1.1% from 1.2%.

Excluding volatile food and energy, prices rose 2.9% compared with a 2.8% increase in February.

(Reporting by Ismail Shakil in Ottawa; Additional reporting by Dale Smith, Rod Nickel and Divya Rajagopal; Editing by Denny Thomas and Barbara Lewis)