A smaller increase in the price of gasoline meant Canada's annual inflation rate slid to 1.4 per cent in March — the lowest growth rate since January 2007, Statistics Canada said Thursday.

The inflation rate has now slowed for four consecutive months. February's rate was 1.8 per cent.

The one-year change in the Bank of Canada's core index, which factors out volatile elements such as food and energy, was 1.3 per cent in March, down from the 1.5 per cent increase in February.

This slowdown in core inflation was mostly a result of lower car prices, Statistics Canada said.

The main factor pushing prices up in March was higher mortgage interest costs, which rose 8.3 per cent.

"The upswing in prices of new housing in March continued to put more upward pressure on mortgage interest costs than the change in interest rates," said Statistics Canada.

Prices that Canadians paid at the gasoline pumps rose by 7.9 per cent from March 2007 to March 2008, but that was less than half the annual rate of growth of 17.1 per cent posted for February. Gasoline prices in March were still the second-largest contributor to the overall inflation rate.

The price of fuel oil and other fuels jumped almost 30 per cent in the 12 months to March 2008. This was the steepest jump in prices since September 2005, when Hurricanes Katrina and Rita hit the United States, producing a sharp spike in prices.

Rising world prices for wheat pushed the cost of bakery products up by nine per cent in the 12 months to March 2008.

Taking off some of the upward pressure on the inflation rate was a 7.1 per cent slide in the cost of purchasing and leasing vehicles, following a 6.8 per cent in drop in February. Dealer incentives and lower prices helped ease costs in this sector.

Lower year-over-year prices were also seen for computer equipment and supplies, fruits and vegetables, and women's clothing.

Big rate cut coming Tuesday: economists  

Economists said both the overall and core annual rates of inflation were slightly below expectations.

"Against the benign inflation backdrop, we expect the Bank [of Canada] to focus on the downside risks to the economic outlook when they make their decision on interest rates next week," said Dawn Desjardins, senior economist at RBC Economics. 

Desjardins and many other economists see the Canadian central bank slicing one-half of a percentage point from the key overnight lending rates with its next decision on April 22.

"There's simply no reason for the Bank of Canada to eschew the [half-percentage point] rate cut we were projecting for the coming week," CIBC World Markets senior economist Avery Shenfeld said.

The Canadian dollar shed 1.07 cents US on Thursday to close at 98.79 cents US following the soft inflation report.