Limiting the overall slowdown in inflation was the end of the federal government’s temporary tax holiday in mid-February.
March was the first full month without the federal sales tax relief on a variety of household staples and dining out, which StatCan said provided some lift in the inflation figures compared with February.
Restaurant prices, for instance, rose 3.2% annually in March following a 1.4% decline in February. Overall food costs including groceries also rose 3.2% year-over-year, up from 1.3% a month earlier.
Bank of Canada rate expectations
The March inflation data comes a day before the Bank of Canada is expected to make its next interest rate decision on Wednesday.
The central bank cut its benchmark rate by a quarter point to 2.75% last month.
Katherine Judge, senior economist at CIBC, said in a note that the drop in the headline number, alongside signs underlying inflation cooled, sets the Bank of Canada up for another cut in the face of trade uncertainty with the United States.
“The easing in price pressures is consistent with the Bank of Canada cutting interest rates by (a quarter-percentage point) at tomorrow’s meeting, with the downside risks to growth from the trade war outweighing any upside to inflation from tariffs in our view,” she said.
BMO’s Porter noted however that the Bank of Canada’s path forward is less clear as the central bank’s preferred measures of core inflation hold just below 3% and “policymakers are operating in the dense fog of an ever-shifting trade war.”
What inflation looks like across Canada
Canada’s annual inflation rate was 2.3% in March, Statistics Canada says. Here’s what happened in the provinces. 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):
