Highlights:
- Year-over-year headline CPI growth rose to 2.3% from 2.2% in February — although that was below market expectations for a 2.4% gain.
- Ex-food & energy price growth strengthened to 1.9% from 1.8% on a year-over-year basis.
- The Bank of Canada’s preferred ‘core’ measures held at a 2.0% average in March although CPI-trim ticked down to 2.0% from 2.1% in February.
Our Take:
The tick higher in the headline CPI rate to 2.3% in March was softer than expected — although with little sign of softening in underlying trends that are still running around a 2% rate or higher. Energy prices rose about as expected given higher gasoline prices. Ex-food & energy price growth also ticked higher — albeit not quite as much as we expected — rising to 1.9% year-over-year from 1.8%. More recent trends have still been stronger than the latest year-over-year rates imply. Month-over-month gains in ex -food & energy prices have averaged 2.9% at an annualized rate over the last 6 months. That’s the highest in 15 years. The Bank of Canada’s measures of ’core’ inflation still averaged right at the central bank’s inflation objective at 2.0%, even with a small tick lower in the CPI-trim to 2.0% from 2.1%. More recent growth trends for those measures have also generally been firm at a slightly above-2% rate.
To be sure, economic growth has softened from the (unsustainable) 4% rate of growth a year ago. Nonetheless, for a ‘data-dependent’ Bank of Canada, the economy still looks to be operating around its long-run capacity limits, wages and inflation have firmed, and underlying economic activity still seems to be improving at a slightly ‘above-potential’ rate once looking through transitory near-term wiggles in the GDP data. Yet the overnight interest rate is still 175 basis points below its assumed long-run ’neutral’ level. Looking through monthly/quarterly volatility, we think the economic data will continue to improve enough to justify further modest removal of what is still a significant amount of monetary policy stimulus in place at this point in the economic cycle.
