OTTAWA — Canada’s annual inflation rate cooled more than expected in March, pulling away from the central bank’s target as food prices dropped for the sixth month in a row, data from Statistics Canada showed on Friday.
The annual rate fell to 1.6 per cent from the previous month’s 2.0 per cent, exceeding economists’ forecasts for a decline to 1.8 per cent.
The three measures of core inflation put in place by the Bank of Canada last year remained tame, with CPI common the lowest at 1.3 per cent.
The central bank, which has an overall inflation target of 2.0 per cent, had dismissed a recent rise in inflation, saying that reflected temporary factors.
Food prices were down 1.9 per cent on a year-over-year basis as Canadians paid less for food purchased in stores. Also weighing on the inflation rate was a 0.9 per cent decline in the cost of clothing and footwear.
But that was offset by a 4.6 per cent increase in transportation costs, led by higher prices for gasoline. Excluding food and energy, the March inflation rate was 1.7 per cent.
Here’s what economists say:
Derek Holt, Scotiabank
“Generally speaking, I think it leans in the direction of a neutral, dovish central bank not a neutral, hawkish central bank. We’ve lost the temporary fillip that we got from year ago base effects and energy prices on headline. Now that’s shaking out.
The more disturbing element from a Bank of Canada perspective is that the core measures continue to drift slightly lower on average so I just don’t see the talk of rate hikes anytime soon as being credible, anchored in the inflation numbers that we’re getting.”
Nick Exarhos, CIBC
“Inflation isn’t yet a concern for the Bank of Canada, and a soft CPI reading in March gives them room to continue citing slack in the economy. Headline CPI slipped almost half a per cent on the month in reaching 1.6%, two ticks weaker than the street was looking for. Although continued weakness in food prices played a role, and there was less of a year-on-year lift from gasoline, the surprise was tied to the ex-food and energy component. On that more selective measure prices fell by a seasonally adjusted 0.1%, and that after a flat reading the prior month. Two of the Bank’s three new measures of core inflation also fell in March, suggesting that despite firm growth indicators recently, the economy isn’t generating many sustainable inflationary pressures — at least not yet. All told, a soft reading on CPI should give reason to bid up fixed income and weaken the C$ slightly.
© Thomson Reuters 2017