Inflation surprisingly soft as cheaper food offsets gas prices

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 offsetting 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-over-year 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 - a string of 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 despite the solid numbers, bank governor Stephen Poloz said last week that it was still early days and 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 very consistent with the Bank of Canada’s message that the economy still 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 in an interview.

“It will keep them kind of singing the same tune.”