Inflation softens as lower food costs offset high gas

OTTAWA • The country’s annual inflation rate slowed to an unexpectedly weak pace last month as the continued decline in food prices played a big role in neutralizing the higher cost of gasoline, Statistics Canada said Friday.

The latest inflation numbers appear to support the Bank of Canada’s assessment that despite months of improving data, the economy has more room to grow before it returns to full capacity.

Statistics Canada’s consumer price index reading of 1.6 per cent shows the pace of inflation decelerated from February’s year- overyear reading of two per cent, which was right on the Bank of Canada’s ideal target.

Economists had predicted 1.8 per cent inflation for March, according to Thomson Reuters.

The softer- than- expected result followed months of surprisingly robust economic data — improvements that prompted the Bank of Canada to boost its growth projection for the year to 2.6 per cent, up from its January call of 2.1 per cent.

But bank governor Ste- phen Poloz said last week the economy had yet to prove it can stay on the higher growth path. Poloz also warned of persistent risks that suggested the bank would not hike its benchmark interest rate any time soon.

BMO senior economist Benjamin Reitzes said Friday’s inflation figures were consistent with the Bank of Canada’s message that the economy has a way to go.

“There is still a lot of spare capacity in the economy and until inflation picks up they’ll probably stick with that narrative,” he said.

TD s e nior e c onomist James Marple said the presence of soft inflation despite improving growth suggests Canada still has room to expand, particularly for an economy still recovering from the oil-price shock.

Statistics Canada’s numbers showed some of the biggest downward forces on inflation were lower prices for clothing and footwear, which declined 0.9 per cent, and food, which fell 1.9 per cent.

Compared with a year earlier, the cost of fresh fruit dropped 12.4 per cent while fresh vegetable prices fell 10.2 per cent.

Gas prices increased 15.2 per cent last month.