Canada's inflation rate dropped sharply in March, as the pace of increase in food and gasoline prices slowed significantly.

The consumer price index rose 1.9 per cent in March from the year before, down from February's 2.6 per cent increase, Statistics Canada said Friday.

The large drop was even more than the drop to two per cent that economists had been expecting.

It's the first time in 18 months that the annual rate has been below the two per cent threshold. That's the level the Bank of Canada targets in making its decisions on interest rates.

Of the eight indices that the agency tracks for inflation, six posted slower year-over-year gains, including food and energy, which made up the lion's share of the overall slowdown.

Bank of Montreal economist Robert Kavcic said given that gas prices continued to rise last year in April, it may be possible to see annual inflation fall further next month. As for food, the correction was long overdue, he said.

"We're overdue to see food inflation cool because agricultural prices started coming off as early as the middle of last year," he explained.

"Given the trend we've seen in raw commodity prices, it's probably a safe bet that [food] will ease further. You also have a lot of competition heating up in the grocery store sector [with] Target coming in next year."

Food prices rose 2.2 per cent in the 12 months to March, following a 4.1 per cent increase the previous month. As well, the cost of energy advanced 5.1 per cent in the 12 months to March, after rising 7.2 per cent in February.

The so-called core rate, which strips out volatile changes in food and energy prices, was at 1.9 per cent during the month, a drop from 2.3 per cent.

Regionally, not a single province saw its inflation rate creep higher during the month.