Inflation surprisingly soft as cheaper food offsets higher gas prices

Canada: Inflation Mellows in March

Canada Annual Inflation Rate Climbs 1.6% in March

Canada's annual inflation rate slowed sharply in March after two months at or above 2%, in line with a widespread pullback in inflation expectations following a jump in the wake of President Donald Trump's election victory last fall.

Consumer price inflation decelerated to 1.6% (year-on-year) in March from 2.0% in February.

The country's annual inflation rate slowed to an unexpectedly weak pace last month as the continued decline in food prices played a big role in offsetting the higher cost of gasoline, Statistics Canada said Friday.

The softer-than-expected reading followed months of better-than-expected economic data which prompted the Bank of Canada to boost its growth projection last week for the year to 2.6 per cent, up from its January call of 2.1 per cent. While economists have seen the odds of another rate cut diminishing amid signs of a strong first quarter, they said the muted inflation figures gave no reason for policymakers to begin hiking rates.

The headline year-on-year rate declined to 1.6% from 2.0% previously compared with expectations of a 1.8% rate while the core year-on-year rate declined to 1.3% from 1.7%.

TD senior economist James Marple said the presence of soft inflation despite improving growth suggests Canada still has room to expand, particularly for an economy still recovering from the oil-price shock. Compared to a year earlier, the cost of fresh fruit dropped 12.4 per cent while fresh vegetable prices fell 10.2 per cent. For example, gas prices increased 15.2 per cent last month.

Food prices were down 1.9 percent on a year-over-year basis as Canadians paid less for food purchased in stores, while a decline in clothing costs also weighed on inflation.

Across Canada, Prince Edward Island was the only province that saw its annual inflation rate accelerate last month.

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