MNI DATA REACT: Canada March CPI Has Biggest Drop on Record

By Greg Quinn

     OTTAWA (MNI) - Canada's 12-month inflation rate took the biggest dive in

more than a decade in March and the seasonally adjusted monthly measure was down

the most on record because of plunging gasoline prices and shutdowns linked to

the COVID-19 pandemic.

     Consumer prices rose 0.9% in March from a year ago versus February's 2.2%

pace, the biggest swing since 2006, Statistics Canada said Wednesday from

Ottawa. The CPI reading was also the slowest since May 2015, and below the BOC's

1%-3% inflation target band.

     Gasoline prices dropped 21% from a year earlier as health authorities

discouraged non-essential travel and a Russia-OPEC price war caused a global

supply glut. Excluding energy, inflation was 1.7%.

     The weakness went far beyond energy. Even food prices declined 0.1% in

March from February as restaurants were restricted to take-out and deliveries

and the first rush on grocery stores to stock up in late February subsided.

Prices for all goods fell 1.5% on the month and by 0.6% from a year earlier. 

     Prices for services that are typically more resilient also faded in March.

"Lower year-over-year prices for traveler accommodation (-2.2%), rental of

passenger vehicles (-6.4%) and rail, highway bus and other inter-city

transportation (-4.6%) reflected reduced demand for travel within Canada,"

Statistics Canada said. The agency said data collection for the March report

went ahead mostly as usual with most of its field work done before travel

restrictions were in in place. 

     The BOC halted regular economic forecasts last week and said inflation may

slip to an average of zero this quarter, and in a worst-case scenario prices

could fall into the middle of next year. Governor Stephen Poloz cut interest

rates to near-zero April 15 and committed to buying bonds and corporate

securities that could add more than CAD200 billion to its balance sheet to

stabilize markets and the economy. 

     Canada hasn't seen extended price declines since the Korean War or the end

of the Great Depression. In the best-case scenario, the BOC suggested inflation

will rebound and quicken beyond 2% early next year.

     The CPI fell 0.6% in March from February, the most since 2014. That was a

sharper decline than the MNI median of -0.4%, and the 12-month pace was also

below expectations of 1.1%.

     Seasonally adjusted monthly prices fell 0.9% in March, the most in records

back to 1992, Statistics Canada said. 

     Travel restrictions remain in place this month, adding to price reduction

pressure. Costs of some items like meat may jump as supply networks are

hindered, but those can't offset the broader demand weakness. Consumer

confidence has plunged to record lows as 1 million Canadians lost their jobs in

March.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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