Consumer price increases ease in March from 1.6 per cent the previous month
Ottawa — The Canadian Press
Published on Friday, Apr. 23, 2010 7:07AM EDT
Last updated on Friday, Apr. 23, 2010 10:11AM EDT
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.
“That whooshing noise you just heard was a giant sigh of relief from the Bank of Canada,” Douglas Porter, deputy chief economist at BMO Nesbitt Burns wrote in a note to clients.
“At the very least, today's low-side outcome for both headline and core inflation in March will dampen some of the more aggressive expectations for Bank of Canada rate hikes. Talk of 50-basis-point moves any time soon should be quelled by these much milder inflation figures, which suddenly put core trends closer to earlier bank forecasts.”
CIBC economist Krishen Rangasamy said the March data shows inflation is well under control in Canada and that any future rate increases will be modest.
The Canadian dollar fell by about half-a-cent, suggesting that the market too saw the data as a negative factor to a policy rate hike. The dollar traded at 99.49 cents (U.S.) as the Toronto Stock Exchange began trading Friday, down from parity.
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 16 per cent in February – 64.1 per cent in British Columbia – 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.
While Friday's report might raise some doubt on whether the Bank will start raising rates by June, “that still seems to be the most likely course given the strength in the economy,” Mr. Porter wrote.
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 2 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.