Overall inflation eased for Canadians in March, but the end of the GST/HST holiday and U.S. President Donald Trump’s trade war continues to stress consumers in Canada.
Statistics Canada said Tuesday that the annual pace of inflation cooled to 2.3 per cent in March, compared to 2.6 per cent the month before.
The numbers defied analysts expectations, who expected inflation to remain unchanged from February. Experts believe that Canada managed to keep the rate of inflation below two per cent until December because of the GST/HST holiday, which lasted from Dec. 9 to Feb. 15.
Statistics Canada said the slowdown in prices was led largely by Canadians paying less for tourism, airfare and gasoline.
Canadian consumers paid 1.6 per cent less for gas at the pump in March compared to this time last year. Excluding gasoline, the rate of inflation would be 2.5 per cent.
“The decline was largely a result of lower crude oil prices amid concerns of slowing global oil demand and slowing economic growth related to the threat of tariffs,” Statistics Canada said.
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Prices for travel tours fell drastically by 4.7 per cent, after an 18.8 per cent increase in February, while airfare fell 12 per cent annually after a 4.4 per cent decrease in February. Overall transportation costs in Canada rose 1.2 per cent in March.
Canadians paid 8.8 per cent less for cellular services compared to March of last year.
March was the first full month with the GST/HST reapplied, which showed up in restaurant bills. Canadians paid 3.2 per cent more at restaurants in March, following a 1.4 per cent decrease in February. Shelter costs rose by 3.9 per cent.
“Prices are grounded for now, but probably not for long. In the months ahead, we could start to see the impact of new tariffs pushing prices higher. At the same time, changes to carbon pricing in April will offset some of the price adjustment—adding to the mixed signals the Bank of Canada is having to navigate,” said Andrew DiCapua, principal economist at the Canadian Chamber of Commerce.
He added, “If trade tensions continue to escalate, we’re looking at the risk of a stagflationary environment with slower growth and rising prices.”
DiCapua said he expects the Bank of Canada to hold interest rates steady at its interest rate announcement on Wednesday.
The Royal Bank of Canada economist Abby Xu expects a modest rate cut of 25 basis points from the Bank of Canada.
“Our forecast for the Canadian economy this year has weakened since March. Tariffs are still expected to hurt Canadian exporters but concerns have also grown around a substantially softer U.S. outlook due to reciprocal tariffs and how that can spill over to impact Canada,” Xu said.
Shannon Terrell, financial expert at NerdWallet Canada, said while Canadians breathe easy with cooling inflation, “it’s too early to loosen the belt.”
“Shelter remains the budget-hungry elephant in the room, with rent and mortgage interest costs climbing at an outsized pace. And while grocery costs have yet to reflect tariff-related price hikes, the cost of eating out is on the rise,” Terrell said.
Tu Nguyen, economist at RSM Canada, said Canadians can expect some price increases in the months ahead.
“Unless the U.S. announces tariff exemptions on Canadian cars and auto parts, which would lead the Canadian government to drop retaliatory tariffs, one can expect a moderate increase in prices in the upcoming months,” she said.
Nguyen said lower demand among Canadians travelling to the U.S. reflected the growth of a “Buy Canadian” movement.
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