OTTAWA — Canada’s annual inflation rate fell to 4.3 per cent in March as higher mortgage interest costs were offset by lower energy prices.
Statistics Canada reported Tuesday that inflation slowed from 5.2 per cent in February, continuing along a downward trajectory that’s expected to bring it down to three per cent by mid-year.
The continued slowdown in inflation since last summer has now brought the annual rate down to the lowest it’s been since August 2021.
“Today’s report shows that all roads do indeed point to three per cent inflation in the months ahead,” said BMO chief economist Douglas Porter in a client note.
The slowdown comes as global prices pressures ease and high interest rates weigh on the economy.
The headline rate is expected to continue to fall rapidly this year, in part due to base-year effects. A base-year effect refers to the impact of price movements from a year ago on the calculation of the year-over-year inflation rate.
Porter said base-year effects explains part of the deceleration last month, noting March 2022 saw the fastest monthly increase in prices in three decades.
But the deceleration hasn’t brought much relief to homeowners with new mortgages or renewing their mortgages at high interest rates. Mortgage interest costs rose at the fastest pace on record last month, up 26.4 per cent from a year ago.
Grocery prices are also still rising rapidly, but at a slower pace. Grocery prices were up 9.7 per cent on a year-over-year basis in March, down from 10.6 per cent in February. Statistics Canada said the deceleration was driven by lower prices for fruits and vegetables.
The Bank of Canada’s preferred measures of core inflation, which it uses to look through volatility in prices, also trended downward in March.
Although inflation in Canada is expected to continue decelerating this year, the Bank of Canada has said it won’t rest until inflation gets back to its two per cent target.
The central bank has signalled interest rates may have to stay higher for longer to get there. Its key interest rate currently sits at 4.5 per cent, the highest it’s been since 2007.
According to its latest forecasts, the Bank of Canada is expecting inflation to return to its two per cent target by the end of 2024.
