Canada's inflation rate inches up to 1.2% in March

Canada's inflation rate ticked up to 1.2 per cent in March, higher than February's level, but still on the low end of the range deemed comfortable by the Bank of Canada.

Gasoline prices dropped almost 20% compared to same period last year

Amanda Lang explains why Bank of Canada is pleased with inflation at 1.2% 1:17

Canada's inflation rate ticked up to 1.2 per cent in March, higher than February's level, but still on the low end of the range deemed comfortable by the Bank of Canada.

Gasoline prices were the main factor driving down the consumer price index, Statistics Canada said Friday.

Economists had estimated the inflation rate would remain at 1.0 per cent, according to Thomson Reuters.

Since last fall, gas prices have been well below their levels a year ago, keeping the official inflation rate in check. Prices across Canada were 19.2 per cent lower last month than they were in the same month a year earlier.

Stripping out gas prices, the inflation rate would have been 2.2 per cent in March.

Across the country, prices increased in every province except Alberta and Prince Edward Island, where the inflation rate was negative. Ontario now has the highest inflation rate in the country, at 1.6 per cent.

Core rate up to 2.4%

Indeed, the price of just about everything that isn't oil-related increased in March, often by more than what economists had been expecting.

As Scotiabank put it in a note to clients early Friday, "There is solid breadth to price gains with almost every category of prices higher in March."

If other parts of the economy are expanding at a better-than-expected pace, that could be a sign that high inflation may be a problem at some point.

David Madani of Capital Economics noted, "With oil prices stabilising, gasoline price inflation is likely to be less of a drag on headline inflation in the months ahead."

TD Bank economist Leslie Preston pointed out that the inflation report looks at what prices have done over the past 12 months, while Poloz needs to be looking ahead.

"We may have seen a pickup in core (inflation), but the economic reality that the Bank of Canada's dealing with is that Canada's economy likely slowed to around one per cent growth in the first half of this year" she said.

In addition to the overall rate, the data agency also tabulates what it calls the "core rate," which strips out volatile things like food and energy. That rate, which was 2.1 per cent in February, jumped to 2.4 per cent in March, the highest it's been since December 2008 — before the recession.

One of the biggest factors that the Bank of Canada considers in setting interest rates is keeping inflation in a narrow band between one and three per cent.

An inflation rate on the low end of that range means the central bank is more likely to cut rates than hike them. If inflation is on the high end of that range, the bank is likely leaning to a rate hike to cool things down.

The Bank of Canada maintained its key interest rate at 0.75 per cent this week as it lowered its growth economic forecast in its latest monetary policy report.

With files from The Canadian Press

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