Monday Market Minute | Apr 24, 2023

Inflation drops to 4.3% — the disinflation trend holds but core remains sticky

What Moved

StatsCan reported March CPI at 4.3%, a sharp drop from 5.2% in February and the lowest reading since August 2021. The decline was driven by base effects in energy and moderating goods inflation. However, services inflation remained elevated at 5.8%, and the BoC's preferred core measures — CPI-trim at 4.4% and CPI-median at 4.6% — continued to run well above the 2% target. Grocery inflation, while moderating, remained above 9%.

Why It Matters

The split between headline and core inflation created a complex environment for private markets positioning. Headline disinflation supported the BoC pause, preserving the rate stability that benefited private credit yields. But sticky services inflation — driven by wages, rents, and shelter costs — suggested the terminal rate might need to stay higher for longer than markets hoped. For real estate investors, the shelter component was a double-edged sword: it kept the BoC cautious on cuts, but it also reflected the underlying demand that supported property values.

Signal to Watch

The BoC's June decision was still weeks away, but the interplay between headline progress and core stickiness would determine whether "conditional" remained the operative word in the pause framework.

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