Canadian Consumer Price Index, March 2010 Results

Summary:

The Consumer Price Index (CPI), which measures annual price growth for consumer goods and services, rose 1.4 per cent in March. Rising gasoline prices (up 17 per cent annually) were the basis of much of the increase. The Bank of Canada core rate, which excludes some of the more volatile articles in the all-items CPI, rose 1.7 per cent, slowing from the 2.1 per cent annual increase in February.

Analysis:

The CPI release for March was much anticipated after the Bank of Canada’s latest interest rate announcement, when the Bank suggested it will start to raise interest rates in June rather than July as originally anticipated. This change was in response to stronger than expected growth in the economy and inflation over the past two quarters. The real question now is by how much will rates increase. The fact that growth in the Bank’s Core inflation measure was more subdued than the February result adds credence to the argument that we will see consecutive 25 basis point (0.25 of one percentage point) increases after the five remaining meetings this year (125 basis points or 1.25 percentage points total in 2010). With this said, however, forward rates on government treasury bills are still pointing toward a total increase of 150 basis points through December. The CPI release for April will likely provide more insight into what the Bank’s ultimate decision will be on how much to raise the Overnight Rate in June.