Gas Price Surge Drives Canada’s Inflation Rate to 2.9%

Canada’s inflation rate experienced a slight uptick last month, largely driven by increased gas prices, according to data released on Tuesday by Statistics Canada. The report revealed that the country’s overall inflation rate rose to 2.9 percent year-over-year in March, up from 2.8 percent the previous month.

While headline inflation edged higher, economists point to a broader trend of easing price pressures and improvements in the Bank of Canada’s core inflation measures. This trend suggests the possibility of an interest rate cut in June, some experts say.

Gas prices saw a notable surge, with a 4.5 percent year-over-year increase in March compared to a 0.8 percent rise in February. This spike can be attributed to elevated global crude oil prices stemming from supply concerns amid geopolitical tensions and voluntary production cuts.

Shelter prices also contributed to the overall inflation increase, remaining steady with a 6.5 percent annual rate rise in both February and March. Factors such as higher rents (8.5 percent) and a significant increase in the mortgage interest cost index (25.4 percent) drove up shelter prices.

In contrast, clothing and footwear prices, which had experienced declines in January and February due to the pandemic’s onset, rebounded with a 1.8 percent increase in March.

Meanwhile, there was relief in grocery prices, with food purchased from stores seeing a year-over-year increase of 1.9 percent in March, down from 2.4 percent in February and 3.4 percent in January. This moderation in food prices serves as a counterbalance to inflationary pressures.

The Bank of Canada closely monitors inflation data, and its recent decision to keep the key interest rate steady at five percent indicates a cautious approach. However, the central bank hinted at the possibility of a rate cut in June, contingent on sustained evidence of inflation moving towards its two percent target.

BMO’s chief economist Douglas Porter views the cooling trend in core inflation positively, suggesting that it aligns with the potential for a rate cut in June. The Bank of Canada’s core inflation measures declined in March, signaling a supportive environment for monetary policy adjustments.

Overall, the latest inflation report paints a nuanced picture of Canada’s economic landscape, with experts closely watching for further indicators of inflationary trends and potential monetary policy responses.