Canada: Inflation falls to over one-year low in March
Inflation dropped to 4.3% in March from February’s 5.2%. March’s reading represented the lowest inflation rate since August 2021 and was in line with market expectations. Looking at the details of the release, prices for housing, food and transportation increased at slower rates in March, with the latter aided by a favorable base effect given the surge in energy prices observed in March last year.
Annual average inflation edged down to 6.6% in March (February: 6.8%). Meanwhile, core inflation fell to 4.3% in March, from February’s 4.7%. Finally, consumer prices increased 0.52% over the previous month in March, accelerating from the 0.39% rise seen in February.
The ongoing fall in inflation is likely to encourage the Bank of Canada to remain on hold at its June meeting. On the implications for monetary policy, Desjardins’ Marc Desormeaux said:
“The Bank of Canada should be encouraged by today’s inflation print, as it suggests the painful medicine of sharply raising interest rates is having its intended impact in the most interest sensitive sectors. We reiterate that the Canadian economy has yet to feel the full effects of last year’s rate hikes, and that more economic weakness over the course of 2023 should help to bring prices to heel. As such, we still think that the central bank will move to cut borrowing costs towards the end of this year.”