Inflation inches up again in N.B. but signs still point to interest rate cut

Article content

Higher gasoline prices have again helped the annual inflation rate inch higher in New Brunswick, but that’s as the rising price of nearly everything else continues to cool, increasing the chances of a Bank of Canada interest rate cut in June.

Inflation in the province jumped to 2.6 per cent in March year over year, up from 2.1 per cent in February.

Canada’s annual inflation rate rose to 2.9 per cent, up from 2.8 per cent the month before.

That’s three consecutive months under three per cent, a target for the central bank.

And economists are looking past that number to a series of underlying factors that suggest overall price growth has moderated significantly, leading to widespread predictions of a looming rate cut.

Grocery inflation continued to slow in March, rising just 1.9 per cent compared with a year earlier, Statistics Canada reported on Tuesday.

That’s down from February’s annual rate of 2.4 per cent and a far cry from the peak of grocery inflation at 11.4 per cent in late 2022 and early 2023.

“That should justify a first interest rate cut from the Bank of Canada in June,” said CIBC economics executive director Andrew Grantham in a note to investors.

Still, it’s not unanimous.

Scotiabank Economics vice president Derek Holt said that he’s “cautious toward declaring victory over inflation” with new pressures on the way.

The federal government’s budget spending will now have to be incorporated into the Bank’s forecasts, and the spring housing market usually brings an uptick in demand.

More inflation data is set to land on May 21 ahead of a June rate decision.

And gas prices continue to weigh on the overall numbers.

In New Brunswick, like elsewhere in the country, gas prices continue to steadily grow.

The maximum price of unleaded gas in the province was 175.5 cents per litre at the end of March, according to the New Brunswick Energy and Utilities Board.

It was 164.0 at the end of March last year.

The maximum price is already 185.2 halfway through April.

But Royce Mendes, Desjardins managing director and head of macro strategy, suggests that’s a single indicator, volatile to world markets.

“Despite the slight increase in headline inflation, a host of other measures reinforced the message that underlying price growth is normalizing,” Mendes wrote to investors.

“The inflation data for March should give monetary policymakers confidence that the progress made in taming consumer price pressures is sustainable.

“When (Bank of Canada Governor Tiff) Macklem said he wanted to see more of what he had seen in January and February, this type of release was exactly what he was looking for.”

Mendes added: “As a result, we are retaining our call for a rate cut in June.”

Macklem said last week that a June cut to interest rates was now “within the realm of possibilities.”

That’s as the bank left rates unchanged at five per cent for the sixth straight time following 10 increases that began two years ago, all in order to hike borrowing costs in attempts to weigh down consumer spending and slow the rising cost of everything.

“What do we need to see to be convinced it’s time to cut? The short answer is we are seeing what we need to see, but we need to see it for longer to be confident that progress toward price stability will be sustained,” Macklem said. “The further decline we’ve seen in core inflation is very recent.

“We need to be assured this is not just a temporary dip.”

Douglas Porter, chief economist at BMO Capital Markets, told investors this week that food prices are “clearly calming and are now much less of an inflationary force than a year ago.”

“Many of the biggest one-month declines in March were found in the grocery aisles, with fruit, vegetables, sugar and other supplies posting big drops,” Porter said. “For the Bank of Canada, this result is likely just good enough to keep them on track for a potential trim in June.”