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Inflation eases in March, gives central bank more wiggle room

General Angela Calla 27 Apr


Julian Beltrame, The Canadian Press

OTTAWA – Inflationary pressures in Canada eased considerably last month, putting into question expectations that the Bank of Canada will be raising interest rates in a matter of weeks.

Statistics Canada reported Friday that Canada’s annual inflation rate slipped by two-tenths of a point to 1.4 per cent, and the closely watched Bank of Canada core rate fell even further — by four-tenths of a point to 1.7 per cent in March.

On a month-to-month basis, Canadians saw no increase in overall prices between February and March.

The agency said the big reason for the drops in both annual indexes was that the price-distorting Olympics ceased being a major contributor to inflation with the conclusion of the Winter Games at the end of February.

Prices for traveller accommodation soared 64.1 per cent in February, but in March they dropped back to earth to a more tame 2.8 per cent increase from March 2009.

Earlier in the week, the Bank of Canada cited inflationary risks for dropping its year-old conditional pledge to leave interest rates at record lows until at least July after the core reached as high as 2.1 per cent in February.

Economists had expected a slight slip in core inflation, once the Olympics ended, but the consensus was that core inflation would be right on the central bank’s target of two per cent.

March’s large fall now puts the core inflation rate, which excludes volatile items such as gasoline prices, well below the central bank’s target.

The March data suggests prices continue to be soft across many sectors with the exception of gasoline and everything else to do with cars.

Prices at gas pumps across Canada were 17.2 per cent higher in March than they had been a year earlier, overall transportation costs were six per cent higher, prices for the passenger vehicles rose 3.9 per cent and the cost of insuring them cost 5.5 per cent more. But food costs only advanced 1.3 per cent, mostly due to a 2.6 per cent hike in restaurant bills.

As well, consumers paid slightly more for household operations and furnishings, for health and personal care, reading, tuition fees, and cable and satellite services. But many items cost less this March than they did a year ago, including shelter costs and mortgage costs, clothing and footwear, as well as fresh vegetables, meat and fresh fruit.

With interest rates at record lows, mortgage costs were a full six per cent less in March than a year ago. Regionally, the agency said all provinces recorded a price increases, with the Atlantic provinces registering the biggest gains.