April 17, 2014 / 12:37 PM / in 3 years

Canada March inflation higher than forecast; core tame

A man pumps gas into his truck at a Petro-Canada gas station in Toronto January 31, 2008. REUTERS/Mark Blinch

OTTAWA (Reuters) - Costlier energy helped boost Canada’s annual inflation by more than expected in March to 1.5 percent from 1.1 percent in February but the less volatile core measure that guides the Bank of Canada edged up to only 1.3 percent from 1.2 percent.

Statistics Canada said on Thursday the month-on-month rate was 0.6 percent for overall inflation and 0.3 percent for core. The median forecasts in a Reuters survey were 1.4 percent annually and 0.4 percent monthly for headline inflation and 1.3 percent and 0.3 percent respectively for core.

The Bank of Canada on Wednesday had raised its forecast for overall inflation in the first quarter to 1.3 percent from 0.9 percent, and pulled forward its expected time frame for it to reach the 2 percent target to the first quarter of 2015 from the fourth quarter of 2015. It aims to keep inflation between 1 and 3 percent.

However, the central bank uses core inflation as an operational guide to look through, or ignore, temporary movements like energy price jumps, and said the downside risks to inflation remained important. It expected 1.2 percent core inflation for the first quarter and saw it hitting 2 percent only in 2016.

“The main message here is that both headline and core inflation continue to slowly but surely move away from the low end of the bank’s comfort zone,” said BMO Capital Markets chief economist Doug Porter.

“That’s not to say the Bank of Canada is going to sound the all-clear signal any time soon, but it is interesting that we do get a somewhat higher-than-expected reading on inflation yet again just a day after the Bank of Canada was still warning about the downside risk to inflation.”

The price of natural gas was up 17.9 percent on the year and 10.9 percent on the month, and gasoline rose 3.0 percent during March. Excluding energy, inflation was 1.3 percent on the year and 0.4 percent on the month. On a seasonally adjusted basis, prices rose by 0.2 percent from February to March.

The Canadian dollar rose on the grounds that a rate cut was marginally less likely. It firmed to a session high of C$1.0992 to the U.S. dollar, or 90.98 U.S. cents, shortly after the data was released, from C$1.1010 just beforehand.

Additional reporting by Allison Martell and Leah Schnurr in Toronto; Editing by Chizu Nomiyama and James Dalgleish

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