Inflation Rate Edges Up to 2.9% in March Due to Higher Gas Prices

Statistics Canada reported an increase in the annual inflation rate for March, climbing to 2.9% from 2.8% in February, marking the first monthly increase in the headline inflation rate this year. The rise was influenced primarily by a 4.5% year-over-year increase in gasoline prices, which were affected by higher global oil prices.

“Supply concerns due to geopolitical conflicts and continued voluntary production cuts have pushed global crude oil prices higher, resulting in increased prices at the pump,” explained Statistics Canada.

Excluding the impact of gasoline, the core inflation rate for March was slightly lower at 2.8%, down from February’s rate of 2.9%.

Regionally, gas prices increased more rapidly in Western Canada compared to the Eastern regions during the month of March.

March also saw a slowdown in the inflation of grocery prices, which rose by only 1.9% compared to the previous year, a decrease from the 2.4% annual rate observed in February, as detailed in a CityNews Toronto report.

Conversely, the cost of services, including air transportation and rent, continued to climb. Notably, shelter costs significantly impacted the overall inflation, recording a 6.5% increase from the previous year. Mortgage interest costs saw a sharp increase of 25.4% year-over-year, and rent prices grew by 8.5%.

“Higher interest rates, which potentially restrict homeownership, have placed upward pressure on these indices,” stated the agency.

When removing volatile elements such as gas prices, mortgage interest, and rent from the inflation calculation, core inflation showed signs of cooling. This trend is a crucial indicator for the Bank of Canada in assessing future interest rate decisions.

Royce Mendes, managing director and head of macro strategy at Desjardins, commented on the situation: “There has been a normalization towards the Bank of Canada’s target, aligning with what the central bank governor hoped to continue seeing after January and February,” he told 680 News Radio Toronto.

Despite maintaining the key interest rate at five percent last week, the Bank of Canada has hinted that a rate cut in June might be possible, depending on sustained progress towards price stability.

Overall, inflation rates accelerated in seven Canadian provinces in March, particularly in Atlantic Canada, driven by faster price increases for fuel oil and other fuels.