Inflation rate drop likely to ease pressure on rate hikes

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After a well-worded warning that the Bank of Canada may be forced to raise interest rates earlier than expected, Mark Carney may have to wait, as Canada’s annual inflation rate for March dropped below the bank’s target.

According to Statistics Canada on Friday, the annual inflation rate dipped to 1.9 per cent in March from 2.6 per cent in February, largely due to slower year-over-year increases in prices for food and energy.

The rate won’t likely put any immediate pressure on the Bank of Canada to raise interest rates, which are currently very low. The central bank, which targets 2.0 per cent inflation, said this week it would keep its key rate unchanged while making clear it might have to reduce monetary stimulus as the economy recovered.

The cost of energy was up 5.1 per cent in the 12 months to March, versus a 7.2 per cent year-over-year rise in February. Food prices were up by 2.2 per cent in the year to March, lower than the 4.1 per cent comparable jump in February.

The closely watched annual core inflation rate rose 1.9 per cent in the 12 months to March, down from 2.3 per cent in February. The core measure strips out prices of volatile items such as fuel and some foodstuffs.

Prices rose by 0.4 per cent in March from February while the seasonally adjusted rate edged up by 0.2 per cent.


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