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Total CPI rose 4.3 percent year-over-year and 0.5 percent month-over-month (unseasonally adjusted), in line with analyst estimates.
The year-on-year change “was the smallest increase since August 2021,” when the CPI rose 4.1 percent, Statistics Canada said in its April 18 data release.
Much of the annual slowdown stems from the comparison to March 2022, when prices spiked in the aftermath of Russia’s invasion of Ukraine.
For example, gas prices fell by 13.8 percent compared to last year, the largest annual decline since July 2020.
While inflation appears to be moving in the right direction, economists warned of some “sticky” areas that could pose a challenge for the Bank of Canada.
Douglas Porter, chief economist at BMO Economics, warned in his note that prices at the gas station are “on track to rise at least five percent in the current month, so disinflation aid on that front will stall in the (April) report. .”
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TD Bank highlighted services, up five percent in March – “where it has been for almost a year” – as a sticking point for inflation.
The path inflation takes will determine the Bank of Canada’s next move.
The central bank kept its benchmark rate at 4.5 percent at its April 12 meeting, the second consecutive time, after raising rates by 425 basis points from March 2022 to cool historically hot inflation.
Bank of Canada Governor Tiff Macklem said on April 12 that the bank was committed to bringing inflation back to its target rate of two percent and that rates would be raised if necessary.
Here’s what economists say about the numbers and what they mean for the Bank of Canada and interest rates.
Stephen Brown, Capital Economics
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“While base effects helped push headline inflation sharply lower in March, there were also some encouraging signs in core inflation, as average three-month annualized gains in CPI trim and CPI median (Bank of Canada’s preferred measures of inflation) fell to a 16-month low. We continue to expect headline inflation to fall faster this year than the Bank of Canada expects.”
Douglas Porter, BMO Economics
“Today’s report shows that all avenues indeed point to three percent inflation in the coming months, with most short-term underlying metrics remaining around the low three percent. The main question for policymakers and markets is whether a policy rate of 4.5 percent is acceptably restrictive given those inflation trends? We and the Bank of Canada think so, but the BoC will have to be patient at that level to bring inflation back to the target zone below three percent. Overall, therefore, there is not much to change in the short-term policy outlook. The Bank remains on hold, with a tendency to tighten further if necessary.”
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Leslie Preston, TD Economics
“Inflation continued to move in the right direction in March, supporting the Bank of Canada’s decision on the stand pat rate last week. As outlined in our recent forecast, we expect core inflation to continue to fall below three percent annualized in the second half of the year, as does the Bank of Canada.
“However, the continued high level of demand-driven services inflation, or ‘supercore’, speaks to the challenge Governor (Tiff) Macklem spoke of last week to bring inflation all the way down to two percent. This suggests that the BoC should remain vigilant about inflationary pressures and may increase again if momentum in the domestic economy does not cool as expected.”
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Stephen Colle, Fleishman Hillard
“We think underlying inflation is currently between 3.5% and 4%, almost double the midpoint target of 2%. Inflation is unlikely to stabilize at 2% by the end of 2023. An inflation rate of three percent is much more achievable.
“That means, together with recent economic data on spending and jobs, we do not expect the Bank of Canada to announce rate cuts until 2024. There are certainly upside risks around higher energy prices in the coming months, as OPEC recently announced it is cutting supply.
“There are increasing signs of a shift in sentiment from inflation as the main concern to recession as the economy continues to slow.
“While the unemployment rate remains historically low, we expect a recession in the second half of the year to further fuel the shift in sentiment as the central bank begins to rethink its monetary policy.”
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Jay Zhao-Murray, Foreign Exchange Market Analyst, Monex Canada
“The overall conclusion of the report is that, with headline inflation decelerating sharply and core pressures unchanged or marginally improved, depending on the measure, the Bank of Canada is likely to view this print as in line with its current forecast for three by the middle of the year. . However, it is worth emphasizing that these are three consecutive months in which sequential inflation has been well above target, with values of 0.5 percent, 0.4 percent and 0.5 percent month over month from January through March. However, to be consistent with two percent per year, the monthly readings would have to be much lower, around 0.165 percent. In addition, while three-month core prices slowed sharply from the seven to eight percent zone last May to the three to four percent zone last August, we’ve seen many months of slow, squeezing progress in these metrics. There is good reason for the Bank of Canada to be concerned about the upside risk of more stubborn-than-expected services inflation, and while today’s report doesn’t scream “hike next meeting”, we still see a significant risk of the Bank raising again this cycle.
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“Based on the composition, none of the major aggregates saw prices fall outright in March. Even gasoline prices, which according to StatCan were the main driver of lower inflation in the past 12 months, did not fall in March, but increased by 1.1 percent. In addition, real-time data from GasBuddy shows that gas prices have already risen 12 cents per liter or 8.2 percent in April over the average price from the previous month. The breadth of inflation has also increased significantly, with 79 percent of prices we track rising more than three percent year-on-year, a stark difference from the February report’s figure of 52 percent. ”
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Clari Fan, RBC Economics
“Inflation is still above the Bank of Canada target, but shows continued signs of easing. Last year’s interest rate hikes are expected to continue to trickle down and household indebtedness will increase with a lag. That should continue to slow consumer spending and further ease upcoming price pressures. Core CPI readings are expected to return to about three percent (the top end of the BoC target range) by the end of this year. The BoC is expected to stay on the sidelines until that happens, keeping overnight rates at the current 4.5 percent.”
