Surprise slowdown in inflation turns Bank of Canada's interest rate decision into a coin toss

The annual rate of inflation slowed to 2.3 per cent in March, Statistics Canada said Tuesday, down from 2.6 per cent in February.

Statistics Canada announced on Tuesday that the annual rate of inflation slowed to 2.3 per cent in March, down from 2.6 per cent in February and in line with expectations.

The Consumer Price Index rose 0.1 per cent for the month, while economists had anticipated a 0.2 per cent increase.

The probability of the Bank of Canada cutting or holding interest rates on Wednesday is nearly a toss-up, with odds nearly evenly split between a hold and a cut, according to LSEG Data & Analytics.

After reducing its policy rate by a quarter point to 2.75 per cent last month, the central bank is expected to make its next interest rate decision on Wednesday.

The central bank will also release an updated monetary policy report on Wednesday but has warned it may not include a singular, guiding economic outlook amid increased uncertainty.

Bank of Canada governor Tiff Macklem signalled a shift in how the central bank approaches setting rates amid an ever-shifting tariff dispute with the United States back in late March.

He said the central bank would focus more on setting monetary policy appropriate to a range of risks facing the Canadian economy, rather than treating one forecast as the most likely path forward and adjusting rates to suit it.

“The bank will take a broader perspective on the economic outlook and the balance of risks, and set monetary policy in response to the full range of economic and financial conditions,” Macklem said in prepared remarks to a banking and finance conference in March.

“This will help ensure that we respond appropriately to the significant uncertainty in the economic outlook.”

The central bank's preferred measure of inflation, the core consumer price index, rose 1.9 per cent in the 12 months to March, the same as in February.

Economists had expected to see a reading of 1.8 per cent.

The bank's inflation target is two per cent, and it aims to keep the headline inflation rate within a range of one to three per cent.

On a monthly basis, the CPI fell 0.3 per cent in March, compared with the 0.1 per cent decrease anticipated by economists.

Meanwhile, wholesale prices in Canada rose by 0.8 per cent in February, Statistics Canada said on Tuesday. Economists had expected a rise of 0.5 per cent, following a 0.6 per cent increase the previous month.

In the 12 months to February, the price index for manufactured products, food, beverages, and tobacco rose 3.3 per cent, compared with 3 per cent in January. This aligns with expectations and follows a 2.9 per cent increase in December.output: OTTAWA — Canada's annual inflation rate slowed to 2.3 per cent last month, Statistics Canada said on Tuesday, cooling slightly from February and remaining within the Bank of Canada's target range for a seventh month.

The Consumer Price Index rose 0.1 per cent for the month, while economists had anticipated a 0.2 per cent increase.

A poll provided by LSEG Data & Analytics ahead of the release had expected yearly inflation to hold steady month-to-month.

StatCan said the decrease in the annual inflation rate was largely driven by declines in prices for gasoline, cell phone plans and the costs of travel tours, particularly with a chill in U.S. travel demand.

James Orlando, director of economics at TD Bank, said he expects that headline inflation will continue to decline in April with the removal of the consumer carbon price already driving costs lower for motorists this month.

"We're going to see another tick down in inflation, and then we'll stabilize around two per cent for a few months," he said.

The March inflation data comes a day before the Bank of Canada is expected to make its next interest rate decision after cutting its policy rate by a quarter point to 2.75 per cent last month.

The central bank will also release an updated monetary policy report on Wednesday but has warned it may not include a singular, guiding economic outlook amid increased uncertainty.

Bank of Canada governor Tiff Macklem signalled a shift in how the central bank approaches setting rates amid an ever-shifting tariff dispute with the United States back in late March.

He said the central bank would focus more on setting monetary policy appropriate to a range of risks facing the Canadian economy, rather than treating one forecast as the most likely path forward and adjusting rates to suit it.

"The bank will take a broader perspective on the economic outlook and the balance of risks, and set monetary policy in response to the full range of economic and financial conditions," Macklem said in prepared remarks to a banking and finance conference in March.

"This will help ensure that we respond appropriately to the significant uncertainty in the economic outlook."

Economists at other large banks in Canada, including CIBC and RBC, also put themselves in the rate-cut camp on Tuesday. CIBC senior economist Katherine Judge pointed