Statistics Canada reported that Canada’s inflation rate softened in March, which comes following a relatively sharp increase in February. This was the first full month after the sales tax holiday ended, which put inflation on a more normalized path. Attention will now turn to the Bank of Canada (BoC), which makes its interest-rate announcement today. The BoC expected inflation around 2.5% after its last meeting. Tariffs could push prices higher and might have an adverse impact on Canada’s economic activity.

• Canada’s annual inflation rate was 2.3% in March, down from the 2.6% rate in February. February’s rate was higher due in part to the end of the sales tax holiday. On a monthly basis, consumer prices rose by 0.3%.
• March’s slowdown was driven by a decline in gasoline prices, which fell by 1.6% year-over-year. Cellular costs sank by 8.8% in March over the same month last year. Conversely, the price growth of food accelerated with a full month of data following the end of the sales tax holiday.
• The BoC’s two measures of core inflation, median and trim, were largely unchanged at 2.9% and 2.8%, respectively.
• Canada’s central bank makes its interest-rate decision today. The BoC’s policy interest rate currently stands at 2.75%.
• The Canadian Real Estate Association announced sales of existing homes fell by 4.8% in March, their fourth straight decline. Economic uncertainty amid tariffs is weighing on real estate demand.

Slower inflation could nudge the BoC to cut interest rates at some point in the second quarter of 2025. Besides inflation, the BoC will need to closely monitor the labour market and economic growth as tariffs weigh on trade activity. Tariffs are weighing on Canadian households and businesses and dragging down confidence, which has been reflected in slower activity in Canada’s real estate market. Canadian lawmakers are expected to discuss trade and other matters with the US following the federal election.

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