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Canada March CPI edges up; easing core inflation feeds June rate cut bets

Published 04/16/2024, 08:37 AM
Updated 04/16/2024, 02:40 PM
© Reuters. FILE PHOTO: People shop at a grocery store in Toronto, Ontario, Canada November 22, 2022.  REUTERS/Carlos Osorio/File Photo

By Ismail Shakil

OTTAWA (Reuters) -Canada's annual inflation rate ticked up as expected to 2.9% in March, but the central bank's closely watched measures of underlying price pressures eased for a third straight month, data showed on Tuesday, reviving bets for a June interest rate cut.

The acceleration in headline inflation, which matched the median forecast of analysts polled by Reuters, was driven by costlier gas at the pump as supply concerns and voluntary production cuts pushed global crude prices higher, Statistics Canada said. Excluding gasoline prices, inflation slowed to 2.8% from 2.9% in February.

Month-over-month, the consumer price index rose 0.6%, the largest increase since July 2023, but less than a forecast 0.7% gain.

Inflation has stayed under 3% since January and is in line with the Bank of Canada's forecast for it to remain near that level in the first half of 2024.

BoC Governor Tiff Macklem, speaking at an event in Washington, said March data suggested the Canadian economy was continuing to move "in the right direction."

"As expected headline inflation came in close to 3%. ... Importantly, though, measures of core inflation did tick down again and that does suggest that underlying inflationary pressures are continuing to ease," he said.

The bank is looking for sustained signs that inflation is cooling before starting to lower its key policy rate from a near 23-year high of 5%.

After the data, money market saw a roughly 55% chance of a June rate cut from a 44% chance earlier. The Canadian dollar fell to a five-month low against the U.S. dollar after the inflation data. It was last at C$1.3824 or 72.34 Canadian cents per U.S. dollar

"I wouldn't say it's quite as good as the prior two months but still was no worse than expectations," said Doug Porter, Chief Economist at BMO Capital Markets.

"Perhaps most encouraging is we did see some moderation in most of the major measures of core," Porter said. "We think that a June rate cut is possible."

The central bank, trying to cool inflation to a 2% target, kept its key rate unchanged last week but said a cut in June was possible if the cooling trend in inflation is sustained.

CPI-median and CPI-trim - the bank's preferred measures of underlying inflation - fell more than expected. CPI-median slowed to 2.8% from 3% in February while CPI-trim decreased to 3.1% from 3.2%. Economists had expected CPI-median to edge down to 3.0% and CPI-trim to remain at 3.2%.

"The BoC's preferred core measures ... is confirming that we're not seeing the same reacceleration in price growth in Canada that we have been seeing in the U.S. in recent months," said Royal Bank Of Canada (NYSE:RY)'s assistant chief economist Nathan Janzen.

Data last week showed U.S. consumer prices increased more than expected in March, leading financial markets to anticipate that the Federal Reserve would delay cutting interest rates until September.

The BoC, which has kept its key rate on hold for six consecutive meetings, will make its next rate announcement on June 5, after the release of inflation data for April.

© Reuters. FILE PHOTO: People shop at a grocery store in Toronto, Ontario, Canada November 22, 2022.  REUTERS/Carlos Osorio/File Photo

In March, shelter prices continued to apply upward pressure, with the mortgage interest cost and rent indexes contributing the most to the year-over-year gain in the all-items CPI, Statscan said.

Services inflation accelerated to 4.5% in March from 4.2% February, driven by air transportation and rent, while goods inflation slowed slightly to 1.1% from 1.2%.

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