Inflation dodges global woes

By Louise Egan

OTTAWA (Reuters) - Canada's core inflation rate slowed in March to its lowest since July 2005, giving the Bank of Canada plenty of room to slash interest rates to shore up the economy against fallout from a possible U.S. recession.

The figures, released by Statistics Canada on Thursday, showed the Canadian economy remains surprisingly shielded from the inflation concerns plaguing many other countries.

Core inflation -- which excludes volatile items like gasoline and is therefore the central bank's most reliable gage of price growth -- dropped to 1.3 percent from 1.5 percent in the year to February, advancing just 0.2 percent on the month.

Overall inflation fell to 1.4 percent in March from 1.8 percent in February, its lowest since January 2007 due to lower car prices and less upward pressure from gasoline compared with a year ago. The monthly rise in the all-items consumer price index was 0.4 percent.

"The rest of the world is seeing inflation and Canada is seeing disinflation, which is quite remarkable, but understandable given the mix of factors going on within Canada ranging from the stronger Canadian dollar to the battle of wills being conducted through the retail sector," said Stewart hall, market strategist at HSBC Canada.

In the euro zone, inflation pushed to a new high of 3.6 percent in the year to March and U.S. consumer prices jumped by 4 percent in the same period.

The Canadian dollar dipped as low as C$1.0056 to the U.S. dollar, or 99.44 U.S. cents, from C$1.0032 to the U.S. dollar or 99.68 U.S. cents. It then pulled back to C$1.0005.

Analysts surveyed by Reuters had forecast, on average, total inflation of 1.5 percent and core inflation of 1.4 percent.