Canada March CPI +2.3% y/y vs +2.6% anticipated

• Prior month 2.6%
• CPI m/m +0.3% versus +0.6% expected. Prior month +1.1%
• Core CPI m/m +0.1% versus +0.7% last month
• Core CPI y/y +2.2% versus 2.7% last month
• CPI Median y/y 2.9% versus 3.0% estimate. Last month 2.9%
• CPI Trim 2.8% versus 3.0% expected Last month 2.9%
• CPI Common 2.3% versus 2.5% last month
• Full report

This is an important final data point ahead of Wednesday’s Bank of Canada rate decision. Ahead of the data, the market was pricing in a 60% chance of a hold and a 40% chance of a cut. That’s shifted to 50/50 and USD/CAD has quickly risen about 30 pips.

Macklem signalled that they were going to be more-patient in cutting rates but this data point gives them the greenlight to cut or signal that a cut will be coming in June.

The report highlights the end of the GST tax holiday on February 15 as something that moderated the drop in prices. Prices for travel-related items were a drag with air transport down 12% y/y and travel tours down 4.7%. Cell phone service prices also fell 8.8% y/y amid a price war from Canadian telcos.

Looking ahead, the Canadian carbon tax was removed on April 1 and that’s led to a sharp drop in gasoline prices that’s been compounded by the falling price of oil. That will show up in next month’s data.