Canada’s Inflation Eases to 2.3%, Raising Hopes for Rate Cut

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Statistics Canada reported that annual inflation slowed to 2.3%, down from 2.6% in February. (File Photo: Victoriano Izquierdo/Unsplash)

April 16, 2025 — Canada’s inflation rate fell more than expected in March, offering some relief to consumers and raising the chances of a possible interest rate cut by the Bank of Canada.

Statistics Canada reported that annual inflation slowed to 2.3%, down from 2.6% in February. The drop was primarily driven by falling gasoline prices—down 1.6%—and lower travel costs, including a 12% decline in airfares and a 4.7% drop in tour prices.

While the headline figure suggests inflation is cooling, core inflation—measures that exclude more volatile prices—remained relatively high. The CPI median stayed at 2.9%, and the CPI trim eased slightly to 2.8%, both still above the Bank of Canada’s 2% target.

Economists are split on what the central bank will do next. Some argue that the slowdown in inflation and weakening consumer confidence could justify a rate cut, while others point to sticky core inflation as a reason to wait.

“The Bank of Canada is stuck between easing inflation and a slowing economy,” said BMO’s chief economist Doug Porter. “Either decision on rates would be understandable at this point.”

Markets reacted cautiously to the data. The Canadian dollar dipped slightly, and bond yields fell, reflecting increased speculation of a rate cut. Still, most analysts expect the central bank to hold steady.

Food and alcoholic beverage prices rose in March, but cheaper fuel and travel offset the impact. Lower crude oil prices and reduced cross-border travel helped keep overall inflation in check.

The Bank of Canada will announce its rate decision on Wednesday. While the March data offers some breathing room, lingering concerns about core inflation mean the path forward remains uncertain.