Canada’s inflation rate falls to lowest level since August 2021, hits 4.3% in March

OTTAWA — Canada’s annual inflation rate fell to 4.3 per cent in March, reinforcing the expectation that it will continue to fall rapidly this year. 

In its consumer price index report released Tuesday, Statistics Canada said inflation eased last month as higher mortgage interest costs were offset by lower energy prices.

The headline rate slowed from 5.2 per cent in February, continuing along a downward trajectory that’s expected to bring it down to three per cent by mid-year.

The continued slowdown in inflation since last summer has now brought the annual rate down to the lowest it’s been since August 2021.

“Today’s report shows that all roads do indeed point to three per cent inflation in the months ahead,” said BMO chief economist Douglas Porter in a client note. 

The slowdown comes as global price pressures ease and high interest rates weigh on the economy.

In an interview, Porter said mangled supply chains that contributed significantly to runaway inflation recently have largely faded. 

Inflation is largely tracking along the Bank of Canada’s forecast, which accounts for a rapid slowdown this year. 

Its preferred measures of core inflation, which the central bank uses to look through volatility in prices, also trended downward in March.

But the Bank of Canada has said it won’t rest until inflation gets back to its two per cent target, even if the deceleration in inflation has been encouraging. 

On Tuesday, governor Tiff Macklem acknowledged the latest CPI report shows inflation heading in the right direction while testifying at the House of Commons finance committee. 

“We are encouraged by that, but we are also seized with the importance of staying the course and restoring price stability for Canadians,” Macklem told MPs. 

The central bank is particularly concerned that getting from three to two per cent might take a while. According to its latest forecasts, the Bank of Canada is expecting inflation to return to its two per cent target by the end of 2024.

The central bank has signalled interest rates may have to stay higher for longer to get there. Its key interest rate currently sits at 4.5 per cent, the highest it’s been since 2007.

In the months to come, the headline rate is expected to continue to fall rapidly in part due to base-year effects. A base-year effect refers to the impact of price movements from a year ago on the calculation of the year-over-year inflation rate.

Porter said base-year effects explains part of the deceleration last month, noting March 2022 saw the fastest monthly increase in prices in three decades. 

But the deceleration hasn’t brought much relief to homeowners with new mortgages or renewing their mortgages at high interest rates. Mortgage interest costs rose at the fastest pace on record last month, up 26.4 per cent from a year ago.

Grocery prices are also still rising rapidly, but at a slower pace. Grocery prices were up 9.7 per cent on a year-over-year basis in March, down from 10.6 per cent in February. Statistics Canada said the deceleration was driven by lower prices for fruits and vegetables.

Economists have long been expecting slower price increases up the food supply chain to filter down to slower prices increases at grocery stores. 

“I don’t think we’re gonna get a lot of relief from from high prices, they just won’t be rising as quickly as what we’ve seen over the past year,” Porter said. 

This report by The Canadian Press was first published April 18, 2023.

Nojoud Al Mallees, The Canadian Press