World Economy

Canada Inflation Cools as Food Prices Drop

Canada Inflation Cools as Food Prices DropCanada Inflation Cools as Food Prices Drop

Canada’s inflation rate slowed more than economists forecast in March as food and clothing prices declined. Measures of core prices also sagged, underlining Bank of Canada Governor Stephen Poloz’s concern that excess slack remains in the economy.

The consumer price index rose 1.6% in March from a year ago compared with a rate of 2% the prior month, Statistics Canada said Friday from Ottawa. Economists surveyed by Bloomberg forecast the rate would rise 1.8%.

Prices rose 0.2% on a monthly basis, lagging the 0.4% median economist forecast. The average of the Bank of Canada’s three core inflation measures was 1.5%, and the February average was revised down to 1.5% from 1.6%.

The ‘common’ core rate was 1.3% in March, the ‘median’ core rate was 1.7% and the ‘trim’ measure was 1.4%. The median core measure was revised for February to 1.8% from 1.9%, and trim was revised to 1.5% from 1.6%.

Bank of Canada policymakers said April 12 core inflation measures have been “drifting down in recent quarters” and along with slow wage growth was consistent with “material excess capacity in the economy.”

Poloz pointed to those indicators to say the bank needs more sustained evidence to be confident the recovery is on a firm footing. The governor also said the US economy is further along than Canada’s. That hasn’t stopped some private economists from advancing predictions for a rate hike next year, as output and jobs pick up.

“It fits their narrative, and this notion there is no rush to hike,” at the central bank, Jimmy Jean, a strategist in the fixed-income group at Desjardins Capital Markets in Montreal, said by phone. “That neutral stance can be expected to be kept for some time.”

Another economist, Derek Holt, of Scotiabank, said: “Generally speaking, I think it leans in the direction of a neutral, dovish central bank not a neutral, hawkish central bank. We’ve lost the temporary fillip that we got from a year ago base effects and energy prices on headline. Now that’s shaking out."

Food prices fell for a sixth straight month, with a 1.9% decline for March. Gasoline price gains moderated, with a 15.2% March gain following February’s 23.1% jump. Clothing and footwear prices swung to a 0.9% decline in March, from a gain of the same magnitude the prior month. And transportation costs were a main driver of inflation in March, even as the pace of price gains slowed to 4.6% from 6.6%.

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