Canada’s Inflation Rate Slows to 2.3% in March Despite Core Pressures Staying High

Canada’s annual inflation unexpectedly cooled to 2.3% in March, marking a notable decline from February’s 2.6%, according to fresh data released Tuesday by Statistics Canada. The slowdown—driven primarily by falling gasoline and travel tour prices—offers a brief reprieve to consumers but may not be enough to shift the Bank of Canada’s cautious monetary stance.

Economists surveyed by Reuters had forecast inflation to hold steady at 2.6% year-over-year, with a monthly uptick of 0.6%. However, actual figures showed a milder monthly increase of just 0.3%.

While the headline inflation dipped, core inflation indicators—closely monitored by the Bank of Canada—remained firm. The CPI-median, which reflects the middle value in the basket of consumer prices, stayed unchanged at 2.9% in March. The CPI-trim, which removes the most volatile price changes, edged down slightly to 2.8%.

“Lower gasoline prices were the biggest contributor to March’s decline in headline inflation,” StatsCan noted, attributing the drop to weaker crude oil prices amid global demand concerns and geopolitical uncertainty. Gasoline prices fell 1.6% year-over-year.

In contrast, food and alcohol prices surged, reversing their earlier downtrend. Food prices climbed 3.2% annually, while alcoholic beverages rose 2.4%. These increases, which followed a temporary sales tax holiday from mid-December to mid-February, reflect the underlying inflationary pressures on household essentials.

Travel-related costs also saw notable decreases. Airfares plummeted 12.0%, and package travel tours dropped 4.7% compared to March 2024. StatsCan linked this to reduced Canadian travel to the U.S., alongside broader concerns about trade disruptions.

The inflation data arrives just ahead of the Bank of Canada’s anticipated rate announcement on Wednesday. Following seven consecutive interest rate cuts, market watchers estimate a 60% chance the central bank will hold rates steady this time.

With President Donald Trump’s trade tariffs on Canadian goods and Ottawa’s retaliatory actions clouding the economic outlook, the central bank faces a tough decision—balance inflation control with supporting growth in an increasingly uncertain environment.

The BoC’s upcoming policy stance will be closely watched for signals on how long it plans to hold the line amid diverging inflation trends.