Gasoline and Shelter Added Pressure to Consumer Price Growth in March

  • In March, the Consumer Price Index (CPI) rose by 2.9 per cent (y/y). This was higher than February’s 2.8 per cent (y/y) increase.
  • Gasoline prices rose by 4.9 per cent (m/m) and were 4.5 per cent higher than a year ago. Year-over-year, food prices increased in stores (+1.9 per cent) and restaurants (+5.1 per cent).
  • Core CPI (excluding food and energy) grew by 2.9 per cent in March (y/y), which was higher than the 2.8 per cent increase (y/y) in February. Several shelter components were key contributors to overall CPI growth.
  • On a seasonally adjusted monthly basis, the CPI rose by 0.3 per cent in March (following a 0.1 per cent gain in February).
  • The average of the Bank of Canada’s three core inflation measures fell to 2.9 per cent in March from 3.1 per cent in February. CPI-common fell to 2.9 per cent, CPI-median dropped to 2.8 per cent, and CPI-trim decelerated to 3.1 per cent.

Key insights

  • Year-over-year growth of Canada’s consumer price index picked up slightly in March, closing the first quarter of 2024 in line with our expectations. Gasoline prices added some pressure to headline inflation as they were 4.5 per cent higher than at the same time last year. The pace of food price growth, however, continued to moderate, posting a 3.0 per cent year-over-year gain. Price growth for food in stores fell further to 1.9 per cent (y/y). Shelter-related goods and services remained the most notorious contributors to overall price growth. Rent costs were 8.5 per cent higher than a year ago, which was up from 8.2 per cent in February. Mortgage interest cost growth decelerated slightly to 25.4 per cent, though this will come as cold comfort for those facing mortgage renewals in the months ahead.
  • Many inflation indicators are trending in the right direction and interest rate cuts are still on the table for the Bank of Canada’s interest rate announcement in June. In the Bank’s April address, Governor Macklemconfirmed that the Governing Council is looking for more of what we’ve already seen in the inflation data over the last few CPI releases, including a sustained downward trend in core inflation. The minutes from the Council’s meeting leading up to March’s monetary policy announcement highlight that the Bank could look through high shelter inflation if it was the only CPI component holding up inflation’s descent. Corporate pricing behaviour also continues to normalize with fewer firms planning more frequent or larger-than-usual price increases.
  • However, other indicators suggest that further progress toward the Bank’s inflation target will be slow. Near-term consumer inflation expectations didn’t budge in the first quarter of 2024. Long-term expectations for the pace of price growth also ticked upward (though they remain below their pre-pandemic level). These could translate into further upward pressure on wage growth, which is particularly challenging for the Bank at a time when productivity growth has been weak. The share of businesses expecting elevated wage growth to persist into 2025 increased to 23 per cent from 14 per cent in the Bank’s latest quarterly Business Outlook Survey. Elevated inflation in the United States has been more persistent than anticipated by the Federal Reserve, which could drag out their timeline for rate cuts. Divergence between interest rates in Canada and the United States could threaten the strength of the Canadian dollar, which could in turn drive up import costs and add to domestic inflationary pressures.

For more details about our inflation forecast and inflation’s impact on the Canadian economy, please consult our Canadian Five-Year Outlook.