The sharp snap-back in US CPI for March that was reported last week led to concerns that Canada might see a similar unwelcome development when its own data were released. Today Statistics Canada reported that inflation did indeed tick higher in March, but much less sharply than in the US. Headline CPI rose 2.9 percent from a year ago, up from the 2.8 percent recorded in February, thus staying just below the upper limit of the Bank of Canada's target range.
The data have led to a sigh of relief in financial markets, on the basis that a rate cut in June remains "within the realm of possibility", as Bank of Canada Governor Tiff Macklem put it last week. But before we look at the details of today's report, it is worth noting that the month-to-month changes tell a less hopeful story than the year-on-year figures do. Before seasonal adjustment, CPI rose 0.6 percent from February to March, while the seasonally adjusted index rose 0.3 percent. If the Bank is looking for evidence that the deceleration in CPI is being sustained, these numbers do not provide it.
In terms of the main contributors to the rise in CPI, we are yet again looking at the usual suspects: shelter costs and gasoline prices. Shelter costs are up 6.5 percent from a year ago, with rents 8.5 percent higher and mortgage interest costs up 25.4 percent. That last number is within the direct ambit of the Bank of Canada, but the overall increase in shelter costs is also heavily influenced by the very rapid, largely immigration-driven increase in Canada's population.
Gasoline prices rose 4.5 percent in March, mainly in response to international developments, to stand 4.9 percent higher than a year ago. With international tensions ratcheting yet higher, gas prices are set to boost headline CPI again in April. On top of that there is also the increase in the Federal carbon tax, which took effect on April 1, to be reckoned with, though it is noticeable at least in my local area that that increase does not seem to have had much impact on prices at the pumps.
Turning to the widely-followed special aggregates, we find that almost all core measures -- ex food, ex energy, ex gasoline, ex food and energy -- have all slipped just below 3 percent. Goods prices are up just 1.1 percent from a year ago, but services prices have risen 4.5 percent, which will be a concern for the Bank of Canada. The Bank's own preferred gauges of core inflation all edged lower in March, with their mean level now standing just below 3 percent. These numbers all seem to support the notion that a rate cut could some as soon as June 5.
With the inflation numbers out of the way, attention now turns to the Federal budget, set to be tabled later this afternoon. We await this with less than bated breath, since PM Trudeau has spent the last several weeks gallivanting about the country making extravagant spending promises, mostly relating to housing. The only surprise left for Finance Minister Freeland to unveil is whether she will be raising taxes in order to avoid ballooning the deficit. (Spoiler alert: probably).
The Bank of Canada will be watching the budget closely, of course. Governor Macklem has hinted several times that public spending is serving to boost the economy, which obviously makes it harder for the Bank to get inflation down and start cutting interest rates. With the government clearly gearing up for an election, Macklem's message seems likely to fall on deaf ears.
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