Canada’s annual inflation rate eased unexpectedly to 2.3% in March, falling from 2.6% in the previous month, official data from Statistics Canada showed on Tuesday.
The slowdown, driven by lower gasoline and travel tour prices, has renewed speculation over a potential interest rate cut by the Bank of Canada (BoC) this week.
The March figure came in below market expectations, with analysts previously projecting no change in the year-on-year rate. On a month-on-month basis, inflation rose 0.3%, also underperforming the forecasted 0.6% increase.
Despite the headline slowdown, core inflation—which excludes volatile items and is closely monitored by the BoC—remained elevated. This divergence has left economists split on the central bank’s next move, with some pointing to weakening consumer and business confidence as a reason to lower rates.
Doug Porter, chief economist at BMO Capital Markets, noted the dilemma. “Does [the Bank] look in the rearview mirror at still relatively sticky core inflation, or does it look forward knowing that the consumer and business sentiment has crumbled and the economy is likely to weaken in this quarter? That’s a tough call,” he said.
Markets have slightly increased bets on a rate cut, trimming the odds of a hold from 60% to 52% ahead of Wednesday’s policy decision.
Other inflation contributors included a 3.2% annual rise in food prices and a 2.4% increase in alcoholic beverages, partly reflecting the expiry of a sales tax break earlier this year.
