OTTAWA - Higher gasoline prices helped the annual inflation rate tick higher in March, but core inflation continued to cool for the month, raising the chances of an interest rate cut by the Bank of Canada in June.

Statistics Canada said Tuesday its consumer price index for March was up 2.9 per cent compared with a year ago, up from a 2.8 per cent year-over-year increase in February.

The increase came as gasoline prices rose 4.5 per cent compared with a year earlier, helped higher by an increase in global oil prices.

Excluding gasoline, Statistics Canada said the overall annual inflation rate for March was 2.8 per cent, down from 2.9 per cent in February. The Bank of Canada's three core measures for inflation for March also all moved lower compared with February.

Leslie Preston, a managing director and senior economist at TD Bank, said she continues to expect the Bank of Canada to cut interest rates in July, but added that the latest data does raise the chances it might move in June.

“We are seeing a very encouraging cooling in core inflation pressures,” Preston said.

“So we've seen three good months now, but you know the governor will likely want to see a bit more, whether that's one or two months is a tough call.”

Preston said the April inflation figures will be important, but she will also be watching to see what the federal budget holds, as well as the next jobs report.

The central bank kept its key interest rate on hold last week at five per cent, but said it was “within the realm of possibilities” that it might cut rates at its next scheduled announcement in June.

The Bank of Canada has said that it is looking for evidence that the recent easing in underlying inflation will be sustained.

“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,” Bank of Canada governor Tiff Macklem said last week.

Preston noted there was a sharp deceleration in inflation in the U.S., but now it's been rising again.

“You know, these things don't necessarily move in a straight line. It can be bumpy. So the question is, you know, how many downward months do you need to see before the Bank of Canada is confident to cut rates and that's really where the uncertainty lies,” she said.

Olivia Cross, North America economist at Capital Economics, said the March reading fit with the trend of downward momentum in core inflation seen so far this year.

“The bank will probably want to see the same again in the April CPI data, which will be released before the bank's next meeting, although a modest pick-up in the average monthly gain seems unlikely to prevent a cut in June,” Cross wrote in a report.

“There are still some risks to that view, most notably the potential for a much larger rise in oil prices amid an escalation of tensions in the Middle East. Gasoline prices were one of the strongest contributors to headline CPI in March, and oil prices have continued to rise in early April.”

Statistics Canada said shelter prices continued to contribute to overall inflation as they were up 6.5 per cent compared with a year ago.

Mortgage interest costs in March rose 25.4 per cent on a year-over-year basis, while rent prices increased 8.5 per cent.

Food prices rose 3.0 per cent compared with a year ago, while prices for clothing and footwear fell 2.7 per cent. Prices for household operations, furnishings and equipment dropped 2.3 per cent.

This report by The Canadian Press was first published April 16, 2024.