Canada’s annual inflation rate in March unexpectedly fell to 2.3%, three notches lower than the previous month, largely driven by lower gasoline and travel package prices, data released on Tuesday showed.
However, the Bank of Canada’s (BoC) core inflation measure remained high, Statistics Canada said.
On a monthly basis, inflation rose 0.3%, the agency said. Analysts polled by Reuters had previously expected the annual inflation rate to remain at 2.6%, and the monthly increase to be 0.6%.
Canada’s consumer price inflation rate is showing signs of recovery after seven months of staying at 2% or below.
A sales tax exemption from mid-December to mid-February has hidden the real price increase. This is reflected in a surge in food and alcoholic beverage prices, which had previously fallen but rebounded in March.
Food prices rose 3.2% while alcoholic beverage prices rose 2.4% year-on-year.
However, the increase was partially offset by a 1.6% decline in gasoline prices. Excluding gasoline, the consumer price index rose 2.5% in March, Statistics Canada reported.
The statistics agency said the decline in gasoline prices was “largely due to lower crude oil prices, driven by concerns about slowing global demand and a slowdown in economic growth due to the threat of tariffs.”
On an annual basis, travel package prices fell 4.7% in March, while air transportation prices fell 12.0%. The drop in air travel is in line with a reduction in Canadians flying to the United States, Statistics Canada said.
Tariffs imposed by US President Donald Trump on a range of Canadian imports and Canada’s retaliatory measures are expected to push up prices but also weigh on economic growth. This makes it difficult for the central bank to decide whether to cut or raise interest rates.
The Bank of Canada is expected to announce its monetary policy decision on Wednesday. Currency markets are pricing in the BoC's decision to temporarily halt its easing policy after seven consecutive cuts, with a probability of around 60%.
The Canadian dollar was down 0.28% to 1.3911 against the US dollar, or 71.89 US cents. The two-year government bond yield fell 4.2 basis points to 2.537%.
One of the core measures, the CPI-median, which is the middle component of the CPI basket that is ordered by price increases, remained at 2.9% in March, unchanged from the previous month.
Another core measure, the CPI-trim, which excludes the most extreme price changes, edged down to 2.8%, Statistics Canada reported.
