By Robb M. Stewart
OTTAWA--Canadian inflation heated up last month as prices at the pump jumped, but signs of easing underlying pressures could keep the prospect of rate cuts later in the year alive.
The consumer-price index, a measure of goods and services prices across the economy, edged up 0.1 percentage point to 2.9% in March from a year earlier, Statistics Canada said Tuesday. That was in line with the advance economists had forecast. Closely-watched measures of core inflation, which seek to look past volatility in any one component, eased slightly.
On a month-over-month basis, inflation climbed 0.6% in March, the fastest pace since July.
The advance in annual inflation echoes the middle of last year, when the price index similarly dipped to 2.8% in June only to bounce higher in the following months. Central bank policymakers are watching for signs the downward momentum in inflation since can be sustained.
The biggest driver of consumer price growth last month was the spike in gasoline prices. Stripping that out, inflation slowed to 2.8% on a yearly basis from February's 2.9% gain. Still, shelter costs and services inflation broadly remain elevated.
Bank of Canada Gov. Tiff Macklem has cautioned the path to taming inflation is likely to be uneven, though he has noted an easing in price pressures was becoming more broad-based. The bank, which for a sixth policy meeting in a row last week left its benchmark rate unchanged, has projected CPI inflation will be close to 3% during the first half of the year, ease below 2.5% in the second half and then hit the bank's 2% inflation target next year.
After stalling in the second half of last year, growth in Canada's economy has picked up even as labor market conditions have continued to ease. The central projected gross domestic product growth of roughly 2% on average in the first half of the year and 1.5% over the course of the year, climbing to 2.2% next year, thanks to strong population growth and a recovery in household spending.
Two measures of underlying inflation the central bank closely monitors cooled again in March. Weighted median and trimmed mean CPI rose an average 2.95% last month from a year earlier compared with 3.1% growth in February. On a monthly basis, the two measures were steady with an average rise of 0.1%.
The next inflation reading before the Bank of Canada governing council's next meets in early June will carry particular weight in either continuing the easing trends in inflation seen in January and February or by urging caution among policymakers if price pressures linger.
Inflation in the U.S. has remained hot in recent months and accelerated more than anticipated in March, which has some economists questioning whether the Federal Reserve will begin reducing rates this year and if some of the price pressures seen in Canada's biggest export market might work their way north.
Statistics Canada's data showed prices at the pump increased 4.5% in March from a year earlier, after a modest 0.8% increase the month before, thanks to higher global crude oil prices. On a monthly basis, gasoline prices climbed 4.5%.
Canadians also paid more for clothing and footwear on a monthly basis, a rebound after declines in January and February that were the largest since the onset of the Covid-19 pandemic and coincided with a milder and drier winter than usual. Despite the monthly rise, clothing and footwear prices fell on last year.
Shelter costs remain the biggest drivers of inflation, and as category increased 6.5% year-over-year, the same pace as in February. Mortgage interest costs and rent prices continue to rise sharply, affected by higher interest rates.
Countering inflation, prices for telephone and internet services were down sharply on last year, natural gas costs were lower, and men's clothing prices fell.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
04-16-24 0856ET
