Total CPI inflation clocked in at just 1.2%y/y in March. Lower gasoline prices have had the largest dampening impact on inflation over the past year, posting a 19.2% decline since March 2014. The Bank of Canada's core measure of inflation, which strips out the impact of lower prices for gasoline and other volatile items, heated up slightly to 2.4%.
The impact of the sharp depreciation in the Canadian dollar since 2013 is also evident in many price categories. Underneath inflation's tame exterior though are some divergent price trends. Lower gasoline and heating oil prices kept goods price inflation flat, while prices for services have been accelerating (+2.3%).
While the acceleration in core inflation to 2.4% was unexpected, pressures there are likely to ebb as slower economic growth takes a toll on pricing power, and certain sector-specific factors dissipate.
"The opposing forces of the pass through of a weaker Canadian dollar to many consumer prices and softer economic growth (which dampens price pressures) are expected to roughly offset each other. As such, we don't expect today's release will move the Bank of Canada from its current patient monetary policy stance." - said TD Economics
