Drop in gasoline prices help keep Canada inflation benign

Fri Apr 19, 2013 10:21am EDT
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By David Ljunggren

OTTAWA (Reuters) - Canada's annual inflation rate in March slowed to 1.0 percent from 1.2 percent in February, further underlining how little pressure there is on the Bank of Canada to raise rates any time soon.

The main reason for the drop in the annual rate was lower gas prices, Statistics Canada said on Friday. The March rate was slightly less than the 1.1 percent predicted by economists.

The Bank of Canada - which has kept its overnight lending rate at a near record low since September 2010 - this week said it did not expect inflation to hit its 2 percent target until mid-2015. The central bank is not expected to raise rates until the second half of 2014.

"After quite a bit of volatility in the prior few months, Canadian inflation has shown its true colors a little more clearly this month - and those colors are pretty bland," said Doug Porter, chief economist at BMO Capital Markets.

"Inflation, like growth, is at the very low end of what the Bank of Canada is comfortable with."

The Canadian economy is struggling to cope with weak foreign markets and a strong domestic dollar. The Bank of Canada central bank this week also cut its economic forecasts on signs of a slackening economy.

Gasoline prices in the year to March fell by 0.3 percent after rising 3.9 percent in the 12 months to February. Food prices grew by 1.8 percent in the year to March, down from the 1.9 percent recorded in February.

The Bank of Canada's closely watched core rate, which strips out volatile prices of energy and some foodstuffs, stayed unchanged at 1.4 percent.   Continued...

Canadian one dollar coins, also known as loonies, are displayed in Montreal, September 19, 2007. REUTERS/Christinne Muschi