Canadian Consumer Price Index (March 2025)

Inflation eases as Canadians adjust travel spending and gas prices fall 

• Headline CPI inflation for March came in at 2.3% year-on-year (y/y), below expectations for a 2.6% y/y print (and the February print of 2.6% y/y). 
• The deceleration was due to lower prices for gasoline and air travel. On the former, prices at the pump were down almost 2% on the month, and excluding this impact, inflation would have been at 2.5% y/y. The impact from travel was also notable, as travel tours and airfares fell 4.7% y/y and 12% y/y, respectively. Statcan noted that this was influenced by Canadians' forgone travel to the U.S. 
• Putting upward pressure on inflation was the full reinstatement of the GST/HST. This caused the prices for restaurant meals to jump to 3.2% y/y. 
• The Bank of Canada's (BoC) preferred "core" inflation measures held at 2.9% y/y.

Key Implications

• Today's inflation report gave some reprieve from the ongoing threat of higher prices. On a three-month basis, the average of the BoC's core inflation rates eased to 2.7%, from 3.3%, while CPI ex-food and energy came in at 2.6%. This was an encouraging development. Looking forward, April should show further easing of inflation as the elimination of the carbon tax has pushed energy prices significantly lower. That should more than offset the impact of tariffs, but not forever. While inflation is expected to remain stable over the beginning of spring, the tariff impact will start pushing inflation back towards 3% starting in May/June.
• The BoC is meeting tomorrow and the likelihood of another cut has shifted dramatically over the last week. The central bank will be weighing the inflation risk from tariffs against the downside risk coming from consumer/business sentiment surveys, a loosening job market, and a very weak real estate market. We are maintaining our call for another cut from the bank, as it should take out more insurance against the mounting downside risks to the economy. 

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