Quick Take

Sharp Deceleration in March Inflation

Oil wells at sunset

The Conference Board of Canada’s Economist Anna Feng offers the following insights on today's Consumer Price Index data:

Inflation slowed to 0.9 per cent in March, its largest deceleration since September 2006. The oil price crash, coupled with reduced demand for tourism-related services, were the main contributors of weak inflation numbers last month. Core inflation nudged down to 1.8 per cent. Given the temporary shutdown of the Canadian economy, we expect inflation to continue to trend well below the Bank’s 2.0 per cent target in the near term.

  • The consumer price index increased by 0.9 per cent on a year-over-year basis in March, a big drop from the 2.2 per cent growth in February.
  • Slashed demand for oil due to travel bans, coupled with the oil price war, led to a 21.2 per cent drop (year-over-year) in gasoline prices in March. Excluding gasoline prices, CPI increased by 1.7 per cent last month.
  • Growth in all three measures of core inflation used by the Bank of Canada fell last month. The average of the Bank of Canada’s core measures of inflation decreased from 2.0 per cent in February to 1.8 per cent in March, lowest rate since January 2018.
  • Prices for transportation (down 1.2 per cent) and recreation (down 0.5 per cent) declined last month as measures such as travel bans and social distancing took effect to slow the spread of COVID-19.
  • Mortgage interest rates (up 4.4 per cent) continued to exert upward pressure on inflation last month. This is down sharply from recent months, and the 150-basis point cut to the Bank of Canada’s overnight rate is likely to result in softer growth in this component going forward.
  • Overall, March’s mild inflation reflects a cooling economy as Canada started to battle the economic downturn resulting from COVID-19 and volatility in the oil market. In line with the projected contraction in economic activity, we expect inflation to continue to trend far below the Bank’s 2.0 per cent target for the rest of this year.

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Anna Feng

Anna Feng

Economist

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