Canada’s annual inflation rate slowed to an unexpectedly weak 1.6% last month as the continued decline in food prices played a big role in offsetting the higher cost of gasoline, Statistics Canada (StatsCan) reported on Friday.
StatsCan’s latest reading shows the pace of inflation decelerated from February’s year-over-year reading of 2%, which was right on the Bank of Canada’s (BoC) ideal target.
A consensus of economists had predicted 1.8% inflation for March, according to Thomson Reuters Corp.
The softer-than-expected reading followed months of better-than-expected economic data, which prompted the BoC to boost its growth projection last week for the year to 2.6%, up from its January call of 2.1%.
“We really haven’t seen any of that [stronger data] spill over into the inflation side,” says Benjamin Reitzes, senior economist with Bank of Montreal, in an interview.
“Inflation does tend to be a bit of a lagging indicator, so it can take a little while to pick up,” he adds. “So, I would be surprised if this softer trend continues given the better run of data. But if it does, it does suggest that there’s more room to run for the economy.”
StatsCan’s consumer price index showed some of the biggest downward forces on inflation were lower prices for clothing and footwear, which declined 0.9%, and food, which fell 1.9%.
A closer look at the data showed that, compared with a year earlier, the cost of fresh fruit dropped 12.4% while fresh vegetable prices fell 10.2%.
StatsCan reports that higher costs for transportation and shelter made big contributions to the upward pressure on prices. For example, gas prices increased 15.2% last month.
Higher prices for travel tours, which rose at a 6.8% rate, were also among the primary contributors to the change in inflation.
Excluding food and energy prices, the report said annual inflation was up 1.7% last month, which follows a 2% increase in February.
Across Canada, Prince Edward Island was the only province that saw its annual inflation rate accelerate last month.