The Quick Take: April 20, 2018
Gasoline Prices Drive Inflation Higher
“The CPI rose 2.3 per cent on a year-over-year basis in March driven by a 17.1 per cent increase in gasoline prices. This price growth is in line with the Bank of Canada’s expectations, and therefore this report should not sway their cautious approach to reducing monetary stimulus.”
Inflation rose 2.3 per cent in March, slightly higher than the 2.2 per cent increase observed in February. Excluding the impact of gasoline prices, inflation was up 1.8 per cent, matching the rate of increase last month.
Core inflation remains around 2.0 per cent with CPI-common increasing by 1.9 per cent, CPI-median growing at 2.1 per cent and CPI-trim posting growth of 2.0 per cent, a deceleration of 0.1 percentage points relative to last month.
The impact of previous interest rate increases is pushing the cost of mortgage interest payments higher with mortgage interest costs up 2.8 per cent relative to last year. This is a notable change for households, as last March mortgage interest costs were down 0.3 per cent on a year-over-year basis.
In a separate release, Statistics Canada reported that retail sales grew 0.4 per cent in February driven by a 0.3 per cent increase in volumes. On a year-over-year basis, real retail sales are up only 1.4 per cent, marking a sharp slowdown from the strong growth observed last year.
Overall this mornings data releases are in line with the expectation that economic growth has slowed (as forecast in our latest Canadian Outlook) and that inflation is expected to be slightly higher than the Bank of Canada’s 2.0 per cent target this year. Given that the data is in line with the Bank of Canada’s most recent projection, we continue to expect that the Bank of Canada will remain cautious in its approach to reducing monetary stimulus with just one more rate hike this year.