Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Inflation eased to 2.3% in March from 2.6%, much weaker than expected. The details show that only three factors explain the change in inflation since February: 1) the end of the GST holiday pushed inflation 0.3pp higher, 2) lower gasoline prices compared to last year reduced inflation by 0.3pp, and 3) lower travel services costs removed 0.3pp from inflation. These factors are temporary and volatile.
The breadth of inflationary pressures increased in March. While the share of components of CPI rising by more than 5% eased marginally in March to 18% compared to 19% in January, the share of components increasing by more than 3% rose to 41% from 35%. Both measures have bottomed out, and we note that the share of components increasing by more than 3% is now at its highest in more than a year and well above historical norms (see Fig. 1). This confirms that only a handful of components were responsible for the lower inflation in March, suggesting some stickiness and broadening in inflation.
The recent trend in CPI’s monthly changes suggests that the momentum in inflationary pressures eased in March but remained elevated. As such, we observe that the 3-month annualized changes of many CPI components remain above 3% (see Fig. 2), with the 3-month annualized change in headline CPI at 3.2%. While the end of GST holiday is having a significant push on the momentum measures, CPI excluding the effect of indirect taxes has a momentum at 1.0%, significantly below the BoC’s target. However, we note that a lot of the weaker momentum is due to declining gasoline prices and travel services costs.
Similarly, the momentum of BoC’s core measures eased to 2.7% in March, the first time it is below 3% since September 2024. (see Fig 2). This suggests some stickiness in the core measures and some stronger price pressures in recent months despite the GST holiday.
We would also note that the momentum in good prices (+3.1%) and services (+3.1%), slightly above 3%. This suggests that most of the weaker momentum in inflation is due to energy prices.
Overall, the report suggests that, while inflation eased in March, it may not be sustainable. With the decline in inflation due to volatile and temporary factors (gasoline prices, travel services), and the broadening of inflationary pressures, it is unclear whether inflation will remain subdued in the coming months, especially given the potential upside pressures on prices due to the trade conflict.
With this in mind, while the weaker inflation increases the likelihood of a cut at tomorrow’s meeting, we think the BoC is likely to take a pause to better assess the situation, especially in light of broadening inflationary pressures.
In Alberta, inflation remained at 2.8% in March. An acceleration in food prices, due to the end of the GST holiday, and higher natural gas prices were the main sources of upward pressure on inflation. Shelter costs accelerated to 4.4% y-o-y, contributing 1.2pp due to rent and ownership costs. Inflation excluding food and energy (a core inflation measure) eased to 3.0%, above the national measure and the highest rates among the provinces.
We also note a sharp regional disparity, with inflation above the national measure in all provinces West of Ontario and lower than the national measure in the East.
The Consumer Price Index (CPI) increased 0.3% m-o-m non-seasonally-adjusted in March and the inflation rate eased to 2.3%. This was weaker than expected. The end of the temporary GST holiday introduced in December 2024 pushed many components of CPI higher. As a result, food prices increased by 1.9% m-o-m, clothing by 1.6% m-o-m, and alcohol, tobacco and cannabis by 2.3% m-o-m.
Nevertheless, the decrease in inflation was not only due to the end of the tax holiday. Excluding the impact of the change in indirect tax, CPI was down 0.1% m-o-m in March and at 2.2% y-o-y, compared to 2.9% in February.
On a year-on-year basis, five of the eight major CPI components decelerated in March. Transportation costs decelerated to 1.2% y-o-y from 3.0%, mainly due to lower gasoline prices (-1.6% y-o-y), contributing 0.2pp to inflation.
Shelter cost inflation eased to 3.9%, its lowest since April 2021, and remained the main source of inflation, contributing 1.2pp to headline inflation, mainly due to higher rent (contributing 0.4pp) and mortgage interest costs (contributing 0.4pp).
Food price inflation jumped to 3.2% y-o-y (adding 0.5pp to inflation), as a result of the end of the GST holiday, which pushed the cost of food purchased from restaurants 3.2% higher in March and was the main source of inflation in March, contributing 0.5pp to inflation.
Recreation, education and reading costs slowed to 0.9% y-o-y in March (contributing 0.1pp to inflation) due to a sharp decrease in the travel service costs (-6.4% m-o-m).
In February, goods price inflation eased to 1.3% and service price inflation decreased to 3.1%. Energy prices pushed inflation lower, easing by 0.3% y-o-y compared to the same month last year, after a rise of 3.0% y-o-y in February. Excluding food and energy, prices rose 0.2% m-o-m in March and increased by 2.4% compared to the same month last year. The Bank of Canada’s old measure of core inflation, CPI excluding the 8 most volatile components and indirect taxes, eased to 2.2.
Looking at the BoC’s core measures of inflation, they eased slightly in March and were marginally below 3%. CPI-Trim was 2.8%, after 2.9% in February, while CPI-Median was unchanged at 2.9%. As a result, the average of the two measures was only marginally lower 2.85%, below 3% for ninth consecutive month.
By provinces, headline inflation was the highest in Manitoba (+3.0%), Alberta (+2.8%), BC (+2.6%), Saskatchewan (+2.5%), and Ontario (+2.3% y-o-y), while it was the lowest in Newfoundland (+1.1%), PEI (+1.8%), and Quebec (+1.9%).
Core inflation, or CPI excluding food and energy, with the highest in Alberta (+3.0%), BC (+2.8%), Nova Scotia (+2.6%). It was the lowest in Newfoundland (+0.6%), PEI (+1.7%), and New Brunswick (+1.9%).
In Alberta, prices increased 0.4% m-o-m and inflation stayed at 2.8% in March, remaining amongst the highest at the provincial level. Two out of eight CPI components decelerated on the month. Transportation costs decelerated to 1.8% y-o-y from 4.4% y-o-y and remained the main source of inflation, contributing 0.3 percentage points to inflation. It is due a decrease in Gasoline price prices from (+12.1% y-o-y) in February to (+1.5% y-o-y).
Recreation, Education, reading costs decelerated to 2.7% y-o-y (contributing about 0.3pp to inflation) from 3.5% y-o-y. Alberta is one of the highest among other provinces.
Food prices inflation increased to 3.0% y-o-y from 2.1% y-o-y, as it is still recovering from the GST break.
Goods price inflation increased to 2.0% y-o-y from 1.7% y-o-y, and services prices inflation decreased to 3.5% y-o-y from 3.7%. Inflation excluding food and energy decelerated to 3.0%, which is higher than the national measure. Energy costs eased to -0.1% y-o-y compared to 0.8% y-o-y in February.
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Independent Opinion
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