Canadian inflation accelerated last month as fresh strength in gasoline prices removed a large amount of downward pressure on the rate, according to a report Wednesday from Statistics Canada.
The agency’s consumer price index increased to 1.9 per cent in March, up from a two-month stretch that delivered weaker readings of 1.5 per cent in February and 1.4 per cent in January.
The average of Canada’s core inflation numbers, considered better measures of price pressures, rose to 2 per cent in March – edging up from 1.9 per cent in February. They omit more-volatile items such as gasoline and are closely watched by the Bank of Canada.
The firmer inflation picture brings both gauges closer to the central bank’s ideal 2-per-cent target, and comes as the economy works through a soft patch brought on by the drop in crude oil prices at the end of last year.
Before cheaper pump prices weighed on the numbers in recent months, higher gas prices had been a major driver of inflation through much of 2018.
Statistics Canada said the March rebound in the global cost of crude oil pushed gas prices up 11.6 per cent, month-over-month. Gas prices, however, were still 4.4 per cent lower last month compared with March, 2018.
“With gasoline it’s easy come, easy go … . Now, we’re back to paying higher prices for gasoline and it has inflation still, even with that, running around 2 per cent,” CIBC chief economist Avery Shenfeld said in an interview.
“You can worry a lot about the decimal places in inflation from month to month, but the story is that inflation is right where the Bank of Canada wants it to be.”
The March reading, which was in line with economists’ predictions, reinforced expectations the Bank of Canada will leave its key interest rate unchanged at its policy announcement next Wednesday and possibly for the rest of the year.
Year-over-year, Statscan said consumers paid 15.7 per cent more in March for fresh vegetables, 8.1 per cent more on mortgage borrowing costs and 5.6 per cent more for car insurance.
Canadians paid 9.2 per cent less last month for internet services compared with a year earlier, 6.4 per cent less for travel tours and 6.5 per cent less for travel accommodations.
Inflation picked up its pace in every province last month, with Alberta, New Brunswick and Prince Edward Island registering the strongest price growth.
The economy abruptly decelerated in the final three months of 2018. Bank of Canada Governor Stephen Poloz has predicted the weakness to be temporary and for the economy to strengthen in the second half of 2019. The central bank has hiked its key interest rate five times since mid-2017, but has left it at 1.75 per cent since last October.
“With plenty of slack in the economy, price pressures are expected to remain subdued and this will keep the Bank of Canada on the sidelines for the rest of the year,” Alicia Macdonald, principal economist for the Conference Board of Canada, said in a statement.
In a separate report Wednesday, Statistics Canada said the country’s February trade deficit was $2.9-billion, narrowing the gap from a revised shortfall of $3.1-billion in January.
Exports were down 1.3 per cent in February, while imports declined 1.6 per cent.
Statscan’s revision for January showed a smaller deficit – by more than $1-billion – compared with its initial estimate of $4.2-billion.
The combined trade deficit for February, January and December, which reported a shortfall of $4.8-billion, was $10.8-billion – the country’s biggest three-month deficit on record.
BMO chief economist Doug Porter said “the still-sour trade performance” supports predictions of more soft economic growth in the first quarter of 2019.
He said the trade numbers reinforce the expectation that the Bank of Canada won’t be considering a rate hike any time soon, while the upward movement in inflation should dull predictions of an imminent rate cut.
“So, again, it looks like a lengthy Bank of Canada pause.”