(Bloomberg) -- Canadian consumer prices reaccelerated slightly as expected due to higher gasoline prices, while core metrics showed further disinflation progress, keeping the central bank on track to pivot to easier policy as early as June or July.

The consumer price index rose 2.9% in March from a year ago, up from a 2.8% increase a month earlier, Statistics Canada reported Tuesday in Ottawa. That matched the median estimate in a Bloomberg survey. Excluding gasoline, the index slowed to 2.8% from a year ago, down from 2.9% in February.

On a monthly basis, the index climbed 0.6% on broad-based price growth, versus 0.7% expectations, and rose 0.3% on a seasonally adjusted basis.

Gauges of underlying price pressures eased, however. Averages of the Bank of Canada’s two core measures slowed to a 2.95% yearly pace, from a downwardly revised 3.1% in February, weaker than the 3.1% expected. A three-month moving average of the rate fell to an annualized pace of 1.25% from 2.33%, according to Bloomberg calculations.

After the release, yields on two-year Canadian government bonds fell about 10 basis points to 4.18%. The loonie reached a new daily low against the US dollar before paring back losses, trading at C$1.3815 per US dollar at 9 a.m. Ottawa time. Traders boosted bets on a June rate cut to more than two-thirds.

March’s inflation data suggest the decline in core measures so far this year isn’t a temporary dip and supports the bank’s view that underlying price pressures will continue to ease gradually even as gasoline prices lead to faster gains in the headline rate. Bank of Canada officials are now waiting to be convinced that the path to the 2% target can be sustained before taking their foot off the monetary brake.

Recent downward momentum will help dovish members of the governing council argue their case for a cut in the coming months. This is the first of two inflation reports before the next rate decision on June 5, when about 60% of economists in a Bloomberg survey expect a 25 basis-point reduction. That would mark the start of an easing cycle after officials have held their key policy rate at 5% for six consecutive meetings.

Last week, Macklem said policymakers have differing views on when the pivot should begin and that officials are seeing what they “need to see,” but they “need to see it for longer” to be convinced it’s time to cut. 

“Today’s data meets that requirement, although there is one more CPI print to come before the Bank’s next policy decision,” Andrew Grantham, an economist at Canadian Imperial Bank of Commerce, said in a report to investors. “We continue to expect a first cut at that June meeting.”

The bank expects inflation to remain around 3% in the coming months before easing to below 2.5% in the second half of this year and reaching the 2% target in 2025.

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The report adds to evidence there is a growing chance of the bank cutting interest rates at its next meeting in early June, Olivia Cross of Capital Economics said in a report to investors.

“There are still some risks to that view, most notably the potential for a much larger rise in oil prices amid an escalation of tensions in the Middle East,” she said. 

“The good news for the bank is that, thanks to more favorable base effects from here, there is scope for headline inflation to fall in the coming months despite the rise in gasoline prices so far.”

Despite the slight increase in headline inflation, a host of other measures reinforced the message that underlying price growth is normalizing, Royce Mendes, head of macro strategy at Desjardins Securities. 

“The inflation data for March should give monetary policymakers confidence that the progress made in taming consumer price pressures is sustainable.”

The central bank’s previous core inflation metric, CPIX, which excludes the eight most volatile components including gasoline, slowed to 2% from 2.1%.

In March, gasoline prices increased 4.5% from a year ago, following a 0.8% rise a month earlier, as supply concerns amid geopolitical conflict and production cuts led to higher prices.

Mortgage interest costs and rent remained the biggest contributors to the annual change in the rate of inflation. Mortgage interest costs jumped 25.4% and rents soared 8.5%. Excluding shelter costs, the consumer price index rose 1.5% from a year ago, versus 1.3% in February.

Excluding food and energy, the index rose 2.9% from a year ago, up from 2.8%. Services inflation rose 4.5%, compared with 4.2% in February.

Regionally, prices increased at a faster pace in March from a year ago in seven of 10 Canadian provinces, primarily in Atlantic Canada, where furnace oil is commonly used as a home heating source.

--With assistance from Jay Zhao-Murray and Erik Hertzberg.

(Adds more economist reaction.)

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