Canadian Consumer Price Index, March 2011 Results

In March, the Canadian Consumer Price Index (CPI), which measures price growth (inflation) for consumer goods and services, increased by 3.3 per cent compared to March 2010. The key driver of this increase was an 18.9 per cent rise in gasoline prices. The Bank of
Canada Core CPI, which strips out energy and other volatile components, increased by a more moderate 1.7 per cent compared to March 2010.

Analysis: Consumer price inflation is a closely watched economic indicator because the Bank of Canada’s decision on whether to raise or lower its policy rate is tied to inflation expectations.

The Bank would like to see the rate of inflation range between one and three per cent over the long term, and ideally remain steady at two per cent. While overall inflation spiked last month, growth in the Bank’s core index, which excludes the change in gasoline prices, remained slightly below the two per cent target.

The Bank is more concerned with longer term trends than with short term volatility. In its latest Monetary Policy Report, the Bank indicated that it expected the overall rate of inflation to move close to three percent in the second quarter of 2011, with growth in both overall and core CPI converging at two per cent mid-way through 2012.

Against this backdrop, the Bank resolved to hold off on interest rate hikes as the Canadian economy continued to face headwinds from the high value of the Canadian dollar.

Written By:
Jason Mercer
TREB Senior Manager of Market Analysis.

Source: Statistics Canada