Canada's inflation rate rose to 2.9% in March, boosted by higher gas ...

11 a.m.What’s next?Open this photo in gallery:

In the immediate future, Bank of Canada Governor Tiff Macklem will be speaking alongside his American counterpart, Federal Reserve chair Jerome Powell, at an event in Washington on Tuesday afternoon. The central bankers will share their perspectives on the economic outlook and their approaches to monetary policy, among other topics.

Also today, the federal government will table its budget for the 2024-25 fiscal year, which should shed light on whether Ottawa’s spending initiatives are working at cross-purposes with the Bank of Canada’s efforts to tame inflation.

In an interview with The Globe last week, Mr. Macklem said higher spending in recent provincial budgets was “not making it any easier to get inflation down to our 2-per-cent target.”

The next inflation report will be published on May 21. It will be the final CPI release before the Bank of Canada’s next rate decision on June 5. Economists and investors will be eyeing this report closely for any indications of how the central bank will react – and particularly, whether it will lower interest rates from 5 per cent.

– Matt Lundy

10:25 a.m.Gasoline prices continue to slow Canada’s march toward lower inflationOpen this photo in gallery:

Gasoline prices remain a thorn in the side of consumers and the Bank of Canada. Higher prices at the pump were the main contributor to the annual inflation rate accelerating to 2.9 per cent in March, up from 2.8 per cent in February.

Canadians paid on average 4.5 per cent more at gas stations last month compared with March of 2023. The increase from February to March of this year was even steeper, with prices climbing 4.9 per cent on a monthly basis.

To understand those numbers, it helps to zoom out and look at price fluctuations over the course of the past eight months. Gasoline prices started falling from around $1.68 a litre around the start of September last year and continued on that downward trend for the rest of 2023, according to data from GasBuddy, which tracks real-time prices at the pump.

That decline reflected weak global energy demand amid higher interest rates, slow growth in China and relatively high inventories of both oil and gasoline in the United States, among other factors. And those tumbling gasoline prices helped contain Canada’s overall inflation rate during the latter part of 2023.

Since around the start of this year, though, the trend has reversed. Gasoline prices have staged sizable month-over-month gains as a variety of factors put upward pressure on oil prices. For one, the OPEC+ group of oil-exporting countries has said it will extend voluntary supply cuts into the April-to-June part of the year, a move intended to support crude prices.

There are also continued concerns over risks to the global energy supply from Russia’s ongoing attack on Ukraine and, more recently, the Israel-Hamas war.

In the latest geopolitical tit-for-tat that reverberated across energy markets, the price of Brent crude – a key international benchmark – at first rose and then fell as Iran staged its first direct attack on Israel over the weekend. Oil prices had climbed in anticipation of the Iranian strike, which saw the country fire more than 300 missiles and drones against Israel in retaliation for the recent Israeli bombing of an Iranian consular building in Syria.

Crude prices then slipped lower on Monday after news that Israel and its allies had thwarted the attack, which resulted in no fatalities. Tehran had also announced its unprecedented strike and portrayed it as a one-off response, which helped assuage concerns about the risk of a wider conflict in the region.

As of Tuesday morning, however, Israel had yet to rule out a high-stakes response to Tehran’s attack.

For Canadians, the implications of a sizable and sustained rise in oil prices go beyond pain at the pump. During its most recent interest rate announcement on April 10, the Bank of Canada warned that escalating global tensions could boost energy prices and worsen international shipping disruptions, keeping overall inflation higher for longer.

– Erica Alini

9:45 a.m.How economists are reacting to today’s inflation report

Here’s a sampling of how economists are reacting:

Olivia Cross, North America economist, Capital Economics

The March CPI data showed the third consecutive month of muted gains in the Bank of Canada’s preferred core inflation measures, suggesting that there is a growing chance of the bank cutting interest rates at its next meeting in early June.

The bank will not be too concerned by the modest rebound in headline inflation to 2.9 per cent, from 2.8 per cent, which was partly due to higher gasoline prices and also unfavourable base effects. The much more important news is that both CPI-trim and CPI-median rose by just 0.1 per cent m/m on a seasonally adjusted basis for the third month running. That took the average annual rate down to 2.9 per cent, within the 1-3 per cent target range for headline inflation for the first time since June, 2021. The three-month annualized rates showed an even more dramatic easing, falling to just 1.3 per cent. Governor Tiff Macklem said at the most recent Bank of Canada meeting that “we are seeing what we need to see, but we need to see it for longer,” and the March inflation data certainly fit with the trend of downward momentum in core inflation seen so far this year. The bank will probably want to see the same again in the April CPI data, which will be released before the bank’s next meeting, although a modest pick-up in the average monthly gain seems unlikely to prevent a cut in June.

Royce Mendes, managing director and head of macro strategy, Desjardins Securities

When Macklem said he wanted to see more of what he had seen in January and February, this type of release was exactly what he was looking for. As a result, we are retaining our call for a rate cut in June. That said, co-operation from the federal government this afternoon and the next CPI release will both be key in seeing that forecast materialize.

Douglas Porter, chief economist, BMO Capital Markets

It seems strange that a near-3 per cent headline inflation result, coupled with a 0.6 per cent monthly rise, would pass off as good inflation news these days. But the steady cooling in core inflation is welcome news indeed, with now three of the four measures of core below 3 per cent for the first time since the summer of 2021. For the Bank of Canada, this result is likely just good enough to keep them on track for a potential trim in June. We’ll get one more CPI before that decision, as well as Q1 GDP — and today’s federal budget of course — but odds are leaning to a June move for now.

Dominique Lapointe, director of macro strategy, Manulife Investment Management

All in all, this report suggests that the reinflation happening in the U.S. has not yet translated to Canada, leaving the institution a clear path to cut rates in June. It is also worth reminding the more precarious situation of Canadian households relative to the U.S., leaving us also anticipating more regular cuts in Canada (4) as opposed to the Fed this year.

Read the full roundup of economist reaction.

– Darcy Keith

9:32 a.m.Here’s a list of March inflation rates for Canadian provinces

Here’s what happened in the provinces (previous month in brackets):

Newfoundland and Labrador: 3.1 per cent (2.0)Prince Edward Island: 2.6 per cent (1.5)Nova Scotia: 3.3 per cent (2.8)New Brunswick: 2.6 per cent (2.1)Quebec: 3.6 per cent (3.3)Ontario: 2.6 per cent (2.4)Manitoba: 0.8 per cent (0.9)Saskatchewan: 1.5 per cent (1.7)Alberta: 3.5 per cent (4.2)British Columbia: 2.7 per cent (2.6)

– The Canadian Press

9:22 a.m.Here’s a list of March inflation rates for selected Canadian cities

Canada’s annual inflation rate was 2.9 per cent in March, Statistics Canada says. The agency also released rates for major cities, but cautioned that figures may have fluctuated widely because they are based on small statistical samples (previous month in brackets):

St. John’s, N.L.: 3.8 per cent (2.5)Charlottetown-Summerside: 2.5 per cent (1.3)Halifax: 3.6 per cent (3.4)Saint John, N.B.: 2.7 per cent (2.3)Quebec City: 3.4 per cent (3.3)Montreal: 4.1 per cent (3.4)Ottawa: 2.1 per cent (1.8)Toronto: 3.1 per cent (3.0)Thunder Bay, Ont.: 2.3 per cent (2.2)Winnipeg: 1.0 per cent (1.0)Regina: 1.9 per cent (2.0)Saskatoon: 1.8 per cent (2.1)Edmonton: 3.3 per cent (4.2)Calgary: 4.2 per cent (5.1)Vancouver: 2.8 per cent (2.9)Victoria: 2.3 per cent (2.5)Whitehorse: 2.4 per cent (2.5)Yellowknife: 2.2 per cent (1.7)Iqaluit: 2.2 per cent (3.1)

– The Canadian Press

9:15 a.m.Inflation highlights: Consumers see food prices drop, but rent prices riseOpen this photo in gallery:

Here are some highlights from the report:

Inflation has calmed in the supermarket aisle. The year-over-year price increase for food purchased from stores was 1.9 per cent in March, down from 2.4 per cent in February. Grocery inflation peaked at more than 11 per cent in late 2022 and early 2023.In some cases, consumers are seeing outright price declines for some food. Fresh fruit has dropped 2.5 per cent in price over the past year, according to Statscan, while bread has fallen 2.8 per cent.Rents are a significant challenge. Those costs have risen 8.5 per cent over the past year. Rents have jumped 14.2 per cent in Alberta, which is seeing a large wave of migration to the province of late. In New Brunswick and Newfoundland, rents have increased 11 per cent on an annual basis.On a three-month annualized basis, the Bank of Canada’s preferred measures of core inflation have slowed to an average of 1.3 per cent, suggesting that price pressures have eased significantly in recent months.

– Matt Lundy

8:58 a.m.Traders raise bets on Bank of Canada rate cut after Tuesday’s inflation report

Traders immediately raised their bets that the Bank of Canada will soon cut interest rates as today’s inflation report was released.

Implied probabilities in the swaps market now show 57 per cent odds of the bank cutting interest rates in June, up from 43 per cent, according to Refinitiv Eikon data. The odds of a cut have increased to about 83 per cent for the July monetary policy decision, up from 72 per cent. Money markets are pricing in a full 50 basis points of easing by this October.

How economists and market bets for rate cuts reacted to today’s inflation report

The weaker-than-expected core readings immediately sparked heavy rounds of trading in bond and forex markets. The Canadian dollar fell about a quarter of a cent against the U.S. dollar to about 72.40 US cents. The Canada two-year bond yield fell about 10 basis points to 4.220 per cent, although that’s nearly flat for the session. U.S. Treasuries, which set much of the direction for Canadian bonds, are having a quiet morning and are largely directionless so far.

– Darcy Keith

8:50 a.m.The new inflation numbersOpen this photo in gallery:

Canada’s inflation rate ticked higher in March, in large part because of higher gasoline prices last month.

The Consumer Price Index rose at an annual rate of 2.9 per cent last month, edging up from 2.8 per cent in February, Statistics Canada said Tuesday in a report. The result matched expectations on Bay Street.

Gas prices rose 4.5 per cent in March, year over year. So far in April, they’ve continued to rise, posing a challenge for central bankers as they try to wrestle inflation back down to 2 per cent. Excluding gas, the CPI rose at an annual pace of 2.8 per cent, down from 2.9 per cent in February.

Shelter is another thorn for the Bank of Canada. Those prices rose 6.5 per cent, year over year, owing to higher mortgage rates, but also entrenched issues of housing supply shortages across the country.

Tuesday’s report was the first of two before the Bank of Canada makes its next interest rate decision in June. Governor Tiff Macklem has said the central bank is encouraged by the progress it’s seeing with easing inflation, but that it needs to see this trend play out longer before it opts to lower its benchmark interest rate from 5 per cent.

The Bank of Canada’s core measures of inflation – which strip out volatile movements in the CPI – rose at an average annual rate of 2.95 per cent in March, down from 3.1 per cent in February.

– Matt Lundy

8:30 a.m.Canada’s inflation rate ticked up to 2.9 in March: Statscan

Canada’s inflation rate ticked higher in March, as expected. The Consumer Price Index rose at an annual rate of 2.9 per cent last month, edging up from 2.8 per cent in February. The result matched expectations on Bay Street.

– Matt Lundy

7:40 a.m.Markets ahead of March’s inflation report

Futures for Canada’s main stock index tumbled on Tuesday as oil and metal prices ticked lower, with investors wary ahead of a key domestic inflation reading and ongoing Middle East tensions.

June futures on the S&P/TSX index were down 0.7 per cent at 6:43 a.m. ET, mirroring losses in their Wall Street counterparts.

Premarket: TSX futures fall as commodities dip; investors eye key inflation data

Energy shares could see another session of decline as oil edged lower after easing supply concern and escalating Middle East tensions offset data showing faster than expected growth in China’s economy.

Spot gold prices also fell amid high U.S. Treasury yields, while most non-ferrous metals dipped on a stronger dollar and disappointing economic data from China.

A monthly reading of the consumer prices index (CPI) in Canada is on the radar, which will have investors adjusting their bets on the timing of interest rate cuts by the Bank of Canada in the year.

The dataset follows BoC Governor Tiff Macklem’s hint that the central bank was open to commencing the easing cycle in June if the recent cooling trend in inflation was sustained.

The Toronto Stock Exchange’s S&P/TSX composite index ended 0.7 per cent lower on Monday, its lowest closing level in over a month. The sell-off was driven by climbing long-term borrowing costs and investor worry that the country’s federal budget, due on Tuesday at 4:00 p.m. ET, would propose raising taxes and re-apportion money.

– Reuters

7 a.m.March inflation report to be released todayOpen this photo in gallery:

After two months of subdued inflation readings, progress could be tough to find in the next Consumer Price Index report, published on Tuesday morning.

Financial analysts expect the annual inflation rate ticked up to 2.9 per cent in March from 2.8 per cent in February, partly owing to an increase in gasoline prices. According to data from Kalibrate Technologies, the national average price of regular unleaded gas was nearly 6 per cent higher at the end of March, compared with the end of February. Gas prices have continued to rise in April.

The CPI report is the first of two before the Bank of Canada’s next interest rate decision in June. It could prove highly influential in whether the central bank opts to lower its policy rate from 5 per cent. As of now, traders see it as roughly a 50-50 chance that rates are lowered, but those expectations should shift as new data come in.

At last week’s decision, where rates were held steady, Bank of Canada Governor Tiff Macklem said he was encouraged by recent progress to tame inflation, but that he needs to see it for longer. He did, however, say a June rate cut was a possibility.

“We don’t want to leave monetary policy this restrictive longer than we need to,” he said. “But if we lower our policy interest rate too early or cut too fast, we could jeopardize the progress we’ve made bringing inflation down.”

In January and February, inflation numbers came in lower than expected. The Bank of Canada now expects annual CPI growth to average 2.8 per cent in the first quarter, down from a previous estimate of 3.2 per cent.

The central bank expects inflation to linger around 3 per cent over the first half of the year, in part because of rising gas prices. The bank has said that geopolitical tensions in the Middle East and Ukraine could affect commodity prices, amounting to an upside risk for the inflation outlook.

The Bank of Canada expects inflation to ease below 2.5 per cent in the second half of the year, then return to its 2-per-cent target in 2025.

“Inflation may have heated up slightly in March, but that is unlikely to offset all of the better-than-expected progress seen in the first two months of the year,” Andrew Grantham, senior economist at CIBC Capital Markets, said in a research note.

– Matt Lundy