Surprise Slowdown in Inflation Last Month Turns Bank of Canada's Interest Rate Decision Into a Coin Toss

OTTAWA — A surprise slowdown in inflation last month has turned the Bank of Canada's interest rate decision on Wednesday into a coin toss

Canada's annual inflation rate slowed to 2.3 percent in March, surprising economists and keeping the door open for another interest rate cut by the Bank of Canada on Wednesday.

Statistics Canada said Tuesday the consumer price index rose 0.1 percent last month after a 0.4 percent gain in February.

A poll of economists provided by LSEG Data & Analytics had expected yearly inflation to hold steady at 2.6 percent.

StatCan said prices for gasoline fell 6.4 percent last month and cell phone plan rates dropped 3.9 percent.

The agency also noted that a chill in U.S. travel demand helped to push up the costs of travel tours by 4.7 percent over the year.

Economists had expected to see a 3.0 percent rise in the CPI.

"The slowdown in inflation provides some more breathing room for the Bank of Canada ahead of its next interest rate decision on Wednesday," said Desjardins' Randall Bartlett in a note to clients.

"However, we're not convinced that it's enough to push the central bank to an eighth consecutive cut."

Desjardins does expect the central bank will return to rate cuts in due course.

But Bartlett warned that the upcoming economic hit from the Canada-U.S. tariff dispute will also see prices rise in the year ahead, threatening to stoke inflation again.

"We remain of the view that the (Bank of) Canada will stay on hold in April while it keeps some powder dry for the ongoing trade imbroglio with the United States," he said.

After a temporary tax holiday from the federal government ended in mid-February, March was the first full month with sales tax on a variety of household staples and dining out.

StatCan said that provided some lift in the inflation figures compared with February.

Restaurant prices rose 3.2 percent year-over-year in March following a 1.4 percent decline in February. Overall food costs including groceries also rose 3.2 percent year-over-year, up from 1.3 percent a month earlier.

The food price increases came despite a 4.4 percent drop in fresh fruit and vegetable prices last month.