10:59 AM EDT, 04/15/2024 (MT Newswires) -- A similar argument applies to airfare, noted Scotiabank. This year was among the weakest periods on record. Five of the seven weakest periods on record have been in the pandemic era.

On top of this unusual softness is the added fact that airfare in CPI usually pops higher in March over April.

What could add to this argument is that there were more people flying through March including at the start of the pandemic than there were before the pandemic. CPI samples prices in the first two weeks of the month (first three for food). As such, CPI should capture peak March break travel activity that was more elevated than usual, stated the bank.

It's also possible that Statistics Canada is still having difficulty with seasonal adjustments in categories subject to unusually large variations, pointed out Scotiabank.

Here's yet another extension of the same principle. Historically unusual softness in communications prices may be poised for a rebound. The December to February period this year saw one of the largest declines in communications prices on record when it's more commonly a period marked by higher prices. In this case, however, March has been more mixed on communications prices than the other categories which on its own may lessen confidence in a rebound.

Still, the pace of price declines in February isn't sustainable. A continuation of the -9.4% m/m and 13.5% y/y pace of decline in prices for internet access services in February and the 26.5% y/y decline in cell phone plans within CPI would make them free inside of a year, quipped Scotiabank.

Political pressure is driving, added the bank. The 'big three' telecom chief executive officers (CEO) were all summoned to Ottawa in March. They are under political pressure to lower prices and expand features.

There is a limit to political pressure especially as telecoms are under political pressure to increase access at a much higher cost to them and taxpayers. That limit may soon be reached as heat reaches a crescendo with the coming Federal Budget.

Here's another one. CEOs of grocery chains cut prices just ahead of being hauled off to Ottawa to testify before Committees in a game of political theater. Ottawa's "bullying" of private industry contributed to a large decline in grocery store prices. But what about after the Budget passes and shareholders question management, questioned Scotiabank.

Adding to how unusual the price moves have recently been is the fact that vehicle prices posted a usually large decline in February. Used vehicles drove most of that with a drop of 2% m/m NSA.

This won't be a factor in March's reading on Tuesday, but Scotiabank was figuring that the increased carbon taxes during April will easily add 0.2-0.4 percentage point m/m to April CPI including direct and indirect effects. This is beyond whatever the bank will be tracking by then.

The direct effect is partially captured by its impact on gasoline taxes which jumped 5 Canadian cents/liter in April over March. That accounted for about one-third of the rise in gasoline prices so far in April versus the beginning of March.

Do carbon taxes matter to monetary policy? Yes and no, according to Scotiabank. The BoC would probably instinctively remove as much of the direct and indirect effects from the inflation data as possible. That might be tricky to do with high accuracy.

Further, your average person isn't sitting there wondering why the cost of living is going up. They just see it rising and at risk is more extrapolative behavior in terms of inflation expectations and hence behavioral shifts behind contract demands.

It's "crazy" that it has come down to this level of data sensitivity at the BoC, added the bank. Most of what it said in its communications and forecasts made it sound like it was in no rush to cut. Governor Tiff Macklem's casual 'yes' response to whether June was a live meeting was an exception, along with very aggressive forecast changes it made to the supply side. The governor is being too reactive to very short-term data.

Canada was only two months removed from when the two measures of core inflation were both running over 4% m/m seasonally adjusted annual rate (SAAR). The very recent soft patch may be an anomaly and not the first soft patch.

Given that the BoC has an "awful track record" at forecasting inflation, one would expect them to require vastly more evidence of softer inflation before pulling out the pom poms, argued Scotiabank. The central bank always forecasts a magical return to its 2% inflation target and usually miss the turns by overshooting and undershooting the path.