Canada just lost some progress on the war against inflation. Statistics Canada (Stat Can) released the Consumer Price Index (CPI) showing a mild acceleration for inflation in March. While minor, the move was broad based, primarily being driven by energy and shelter costs.
Canadian Headline Inflation Saw Broad Based Acceleration
Canadian inflation is heading in the wrong direction. Headline CPI saw annual growth accelerate to 2.9% in March, an increase of 0.1 points from the previous month. Monthly growth by itself was a whopping 0.6%, more than 3x larger than the target rate’s average monthly growth.
Canadian Headline Inflation Showed Mild Acceleration
The 12-month percent change to the consumer price index (CPI).
Source: Statistics Canada.
To complicate things further, the agency notes this move was “broad based” acceleration. Despite this, a number of analysts attributed the growth to just a few areas… apparently disagreeing about the broad based move.
Gas Prices Surge, No Longer A Drag On Inflation
Energy prices were a major contributor to rising inflation, gasoline in particular. Gas prices rose a whopping 4.9% in March alone, and prices are now 4.5% higher than last year. Annual growth was only 0.8% in February, helping to artificially lower the pressure. The increase was attributed to supply cuts, geopolitical tensions, and voluntary production cuts.
Shelter Continues To Be A Significant Driver of Inflation
Shelter, the largest major CPI component, is stable but still higher than normal. Annual growth was reported at 6.5% in March, the same level reported a month before. Breaking that down, annual growth for mortgage interest (+25.4%) pulled back, while rents (+8.5%) accelerated slightly.
Canadian Shelter Cost Index
Annual growth of various segments in the CPI shelter component.
Source: Statistics Canada.
The biggest takeaway was related to annual growth of homeowner replacement costs (-1.0%). This is essentially the cost of building a new home, and while it’s good news that it fell—it was less than the decline in February (-1.4%). At negative growth, this segment is currently moderating headline inflation. As the decline gets smaller, so does its ability to help inflation moderate. In addition, this might imply the stimulus the federal government is delivering to builders is having an inflationary impact, doing the opposite of the intended goal of creating affordable housing.
As of this morning, most analysts reiterated their calls for a mid-year rate cut. Stat Can additionally stated they’ll be updating the basket weights in June.
