March’s CPI Figures Ease as Base Effects Kick In

  • In March, the Consumer Price Index (CPI) rose by 4.3 per cent (y/y). This was lower than February’s 5.2 per cent (y/y) increase.
  • Gasoline prices grew by 1.2 per cent (m/m) and were 13.8 per cent lower than a year ago. Year-over-year, food prices increased in stores (+9.7 per cent) and restaurants (+7.2 per cent).
  • Core CPI (excluding food and energy) grew by 4.5 per cent in February (y/y), lower than the 4.8 per cent increase (y/y) in February. Higher prices in several shelter and food subcategories were key contributors to overall CPI growth.
  • On a seasonally adjusted monthly basis, the CPI grew by 0.1 per cent in March (compared to an 0.1 per cent increase in February).
  • The average of the Bank of Canada’s three core inflation measures fell to 5.0 per cent in March from 5.4 per cent in February. CPI-common fell to 5.9 per cent, CPI-median dropped to 4.6 per cent, and CPI-trim slid to 4.4 per cent.

Key Insights

Year-over-year CPI growth fell sharply in March, which will likely bring relief to Canadian consumers and policymakers alike. Much of the decline can be attributed to “base effects,” a feature of how price growth is reported. But the Bank of Canada’s preferred measures of core inflation also slid steadily. And the outlook for the Canadian dollar may be in better shape in the wake of banking turmoil in the United States. A stronger currency could insulate Canadians from higher import prices.

Underneath the optimism, however, some troubling currents remain. Food price growth remains aloft, even as the price-setting behaviour of Canada’s grocery chains is under the microscope. Mortgage interest costs, which increase as interest rates rise, will continue to grow as more mortgages are renewed at higher prevailing rates. Wage growth also remains out of step with productivity gains, which could keep price growth above the Bank of Canada’s target for longer than anticipated.

The Bank of Canada appears confident that rates are high enough to bring inflation back to 2 per cent. While the Bank continues to weigh incoming economic data and unforeseen developments that could alter the trajectory of interest rates, the Bank has held rates steady at its last two announcements. And in its April Monetary Policy Report, the Bank’s in-house inflation forecast was little-changed since January, projecting year-over-year CPI growth to hit 3 per cent by the middle of the year and 2 per cent by the end of 2024. That is broadly aligned with our view. At the same time, Governor Macklem recently clarified that rate cuts this year do not appear likely. As the full heft of higher rates is felt throughout the economy, we will see what price must be paid to bring inflation back to target.