Coronavirus Pushing Canadian Inflation Lower

Fundamental analysis of Forex market
  • CPI inflation plunged to 0.9% year-over-year in March
  • Coronavirus pushed prices lower
  • Lower prices good for consumers – when spending is eventually allowed

Social/physical-distancing measures to control the spread of the coronavirus are causing a dramatic economic shock – and already led to sharply discounted prices across a wide variety of products in March. A plunge in consumer prices for energy products was already clearly flagged in the price of oil. But prices also fell, or rose less than normal for March, for products like travel services, traveler accommodation, rental of vehicles, even airfares – all industries that were among the first to see a dramatic pullback in demand due to social/physical-distancing measures. And electricity prices fell sharply in Ontario where the provincial government altered pricing in response to the virus. The price of food purchased from stores – one of the few product groups for which demand rose significantly in March – were up 2.3% year-over-year, slightly below the 2.4% rise in February.

Energy prices have continued to fall – with oil traders earlier this week actually paying buyers to take oil off their hands. Inflation is likely to slow significantly further in coming months. That is normally a good thing for consumers. That’s only true if products are available for purchase, and social/physical distancing measures are also making it very difficult, if not impossible, to purchase some of these products/services. But the discounting will likely increase household purchasing power once virus-control measures do begin to ease.