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Canada's inflation rate ticks up to 2.9% in March amid higher gas prices, boosting June rate-cut bets

Statistics Canada is set to release its July consumer price index report this morning. Forecasters expect inflation ticked up last month, as gasoline prices rose. Gas prices are displayed in Carleton Place, Ont. on Tuesday, May 17, 2022. THE CANADIAN PRESS/Sean Kilpatrick
Canada’s annual inflation rate ticked up in March, rising 2.9 per cent. (THE CANADIAN PRESS/Sean Kilpatrick) (The Canadian Press)

Canada’s annual inflation rate ticked up to 2.9 per cent in March, while measures of core inflation cooled, reinforcing the possibility of a June rate for the Bank of Canada.

Statistics Canada said on Tuesday that higher gas prices contributed most to the slight increase, as prices jumped 4.5 per cent year-over-year in March. Excluding gasoline, the Consumer Price Index (CPI) increased 2.8 per cent.

On a monthly basis, CPI increased 0.6 per cent in March. Seasonally adjusted, CPI increased 0.3. Economists had expected CPI to rise 2.9 per cent in March, following a 2.8 per cent increase in February.

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The central bank's closely watched core measures of inflation slowed in March, with CPI-median pulling back to a 2.8 per cent annual increase (from 3 per cent in February) and CPI-trim edging down to 3.1 per cent annually (from 3.2 per cent in February.)

"For the Bank of Canada, this result is likely just good enough to keep them on track for a potential trim in June," BMO chief economist Douglas Porter wrote in a research note on Tuesday.

Last week the Bank of Canada held its benchmark interest rate steady at 5 per cent, and while it said that a June cut is “within the realm of possibilities,” the central bank needs to see evidence that progress on inflation is sustained, particularly when it comes core inflation.

Governor Tiff Macklem said last week that the central bank is "seeing what we need to see" when it comes to inflation, "but we need to see it for longer to be confident that progress towards stability will be sustained" and that it is "not just a temporary dip."

"The inflation data for March should give monetary policymakers confidence that the progress made in taming consumer price pressures is sustainable," Desjardins managing director and head of macro strategy Royce Mendes wrote in a research note on Tuesday, retaining a call for a June rate cut.

"When Macklem said he wanted to see more of what he had seen in January and February, this type of release was exactly what he was looking for... That said, cooperation from the federal government this afternoon and the next CPI release will both be key in seeing that forecast materialize."

The federal government is set to release its budget on Tuesday afternoon.

Money market bets for a June rate cut increased to over 50 per cent from 44 per cent before CPI data was released, according to Reuters.

"The Bank of Canada said that it was looking for more evidence of downward momentum, and that is exactly what it got with today’s report," Kyle Chapman, FX markets analyst at Ballinger Group, said in a statement.

"Admittedly the headline measure has inched up slightly here, but the market has seen through the effects of the oil price surge, and the broad-based softening in the core measures gives policymakers exactly what they need to justify imminent rate cuts."

Rising shelter prices also contributed to the March increase, with costs rising 6.5 per cent in March. The mortgage interest cost index increased 25.4 per cent annually, while rent prices continued to rise, increasing 8.5 per cent annually.

Food prices were up 3 per cent annually in March, with the cost of food purchased from grocery stores up 1.9 per cent. Meat prices were up 3.4 per cent, bakery products up 1.3 per cent, and fresh vegetables up 2.5 per cent. Fresh fruit prices declined 2.5 per cent.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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