Pricing trends are getting pushed all over the place these days by big economic shifts, resulting in what’s expected to be another elevated inflation reading in Canada this week.
Economists polled by Reuters expect annual inflation for March to come in at 2.6 per cent when it’s released Tuesday, matching February’s reading.
A lower Canadian dollar pushing up import costs, still-rising food prices and the early effects of tariffs are all expected to impact the March consumer price index, said Randall Bartlett, deputy chief economist at Desjardins Group.
“We’re still expecting to see strength in core inflation, still expecting to see strength in food inflation,” he said in an interview.
While trade tensions have helped put pressure on inflation in areas like a lower loonie, they’ve also reduced pressure in other areas, like lower economic confidence and lower commodity prices.
Oil for example, traded for under US$70 a barrel in March, compared with around US$80 a barrel for the month last year.
Overall, tariffs are only expected to show up modestly for March because Canada has still not gone ahead with the bulk of its threatened retaliatory tariffs.
“We have built in some impact from tariffs, but we think it’s quite modest,” said Bartlett.
The federal government did put in place around $30 billion worth of counter-tariffs on U.S. goods in early March when the U.S. imposed and then partially reversed a 25 per cent tariff.
Canada also imposed another $30 billion in counter-tariffs mid-month in response to U.S. metal tariffs, but it has not had to put in place a further $125 billion in counter-tariffs because the U.S. has suspended some tariff threats.
While fewer counter-tariffs helps keep inflation lower, the U.S. holding back on the blanket 25 per cent tariffs on Canadian goods could boost spending, while other pressures remain on prices, said Bartlett.
The delay in the full retaliation means he expects he’ll revise down his inflation outlook for the year.
“So it’ll come down, but it’ll still be higher than I think the Bank of Canada will be comfortable with,” Bartlett said.
The Bank of Canada is set to make its next interest rate decision on Wednesday, the day after the latest inflation read.
The central bank has a “delicate” decision to make given all the various factors, including a federal election underway, said BMO chief economist Douglas Porter in a note.
The inflation read “won’t be great” said Porter, noting his expectation is 2.7 per cent, but adds the Bank of Canada can be comforted knowing April’s reading will “almost assuredly tumble hard.”
The removal of the carbon tax starting in April, a general drop in crude prices and a higher Canadian dollar will all help inflation trends, he said.
The Bank of Canada will have to factor in inflation expectations too though, which in its recent survey showed consumer short-term inflation expectations rose last quarter for the first time since 2022.
The trends mean the Bank of Canada will likely keep rates on hold, said Bartlett.
“Inflation expectations have come in meaningfully higher than I think had been expected by a lot of analysts, so we’re seeing the Bank of Canada focused on that in its most recent deliberations,” he said.
The central bank will also want to “keep some powder dry” in case economic conditions get materially worse, said Bartlett.
Housing trends, including dropping rents and weakening home sales and prices, will also help take some pressure off inflation. The interest rate cuts that have already happened will relieve some of the pressure on rising mortgage costs.
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