Canada’s consumer price index (CPI) rose 2.3 per cent on a year-over-year basis in March thanks to lower prices of gasoline and travel tours—although this was partially offset by the end of the GST/HST tax break in February. Excluding gasoline, the CPI rose 2.5 per cent.
The unexpected slowdown in inflation in March tilts the odds ever so slightly toward an interest rate cut by the Bank of Canada on Wednesday amid signs of a weakening economy, including lower business and consumer confidence and a decline in jobs.
The influence of the Buy Canadian movement is now crystal clear in the data; it led to a plummet in demand for U.S. travel from Canada, which in turn lowered travel prices.
Travel tours decreased 4.7 per cent in March, while air transportation prices fell 12 per cent. The decrease in travel demand also stems from concerns over trade tension, economic downturns and other issues.
Trade concerns have deteriorated the global economic outlook, which led to slowing global oil demand and subsequently gasoline prices. Additionally, OPEC countries announced plans to increase production, which furthered the downward pressures on prices.
On a yearly basis, gasoline prices dropped 1.6 per cent. One can expect another small decrease in gasoline prices in April as the consumer carbon pricing is eliminated.
Looking ahead, unless the U.S. announces tariff exemptions on cars and auto parts for Canada— which could lead Canada to drop its reciprocal measures—one can expect a moderate increase in prices in the upcoming months. The uptick will be highest in prices of autos, auto parts, food, certain appliances and consumer products as importers pass on the costs incurred from tariffs to consumers.
Since Canada’s retaliatory tariffs on U.S. goods are highly targeted, the impact on inflation would be limited. The weakening U.S. dollar as the reserve currency means that inflation might only rise by a modest degree.
Food prices accelerated to 3.2 per cent, up from 1.3 per cent in February as the GST/HST break ended. This is especially apparent in restaurants prices, which reversed from a 1.4 per cent decline in February to a 3.2 per cent increase in March.
Shelter saw the smallest increase in prices since 2021 at 3.9 per cent. Seven consecutive rate cuts helped lower mortgage interest rate payments, which had been the biggest contributor to the CPI over the last couple of years.
Slowing immigration also moderated demand for rental housing, which resulted in rent prices levelling off and even declining in some cities.
However, core inflation measures remain elevated and close to the 3 per cent upper range. This shows that some underlying inflationary pressures remain.
For the time being, concerns over economic downturns outweigh inflation worries. Even if tariffs increase prices, consumer confidence and consumer demand will drop—and lower demand puts downward pressure on prices.
