Inflation cools slightly in March

Consumer prices rose 1.4 per cent in the 12 months ended in March, slightly less than the 1.6 per cent annual advance seen in February, Statistics Canada said Friday in its monthly inflation report.

Better still, core inflation — the national price level once volatile components such as fuel and food are subtracted — retreated from a 2.1 per cent rise in February, slipping to 1.7 per cent.

Gas up

Higher gasoline prices created the most upward pressure on the top-line consumer price index in the month.

Prices at the gas pump were 17.2 per cent higher in March than a year earlier. That followed a 15.3 per cent rise in the 12 months ending in February. In fact, March's gain was the fifth straight month in which the price of the commodity has risen, Statistics Canada said.

Crude oil costs have risen approximately one-third in 2010 versus 2009. The average price for a barrel so far in 2010 is $69.85 cents US. That compares with the average for the previous year of $53.48.

Overall energy prices rose 5.8 per cent in March 2010 compared with the previous March.

Besides pump prices, Canadians also paid more for food, cars and household communications, while the costs for mortgage interest, natural gas, clothing and footwear all showed declines.

Core concerns

The core rate of inflation is used by the Bank of Canada for its interest rate policy. The Bank of Canada aims for a target rate of two per cent for the core inflation rate.

The March core rate came in below the consensus forecast of economists. A Reuters survey said economists had been expecting a March core rate of two per cent.

But economists still believe the Bank of Canada will seek to hike interest rates later in the year in order to cool off inflationary pressures.

In response to the release of the central bank's monetary policy report on Thursday, the Royal Bank of Canada had anticipated a core CPI reading of 1.8 per cent for March, an accurate prediction.

"[Easing core inflation] will not buy the bank much time, but it could see the bank press on until the July meeting if other economic data show that the strong momentum started to flag late in the first quarter of 2010," said Dawn Desjardins, RBC's assistant chief economist, on Thursday.

In the first three months of the year, Canada's economy has been growing much faster than economists anticipated. That has led to concerns that the Bank of Canada will hike interest rates faster and to a higher level in an effort to keep a lid on inflation.

RBC, for example, predicts that Canada's gross domestic product grew by five per cent in the January-to-March period.

In response, the Bank of Canada will push up the target overnight rate to 3.5 per cent in the fourth quarter of the year, up from the 0.25 per cent average in the first three months of 2010, RBC forecasts.