OTTAWA -
Canada continued to dodge the global inflation bullet last month, as the annual rate slipped to 1.4 per cent from 1.8 per cent in February.
That's the lowest inflation rate since January 2007, and marked a fourth straight month in which inflation slowed, Statistics Canada said Thursday. It's also well below the four per cent rate in the United States.
Analysts said the strong loonie helped dampen inflation by essentially keeping import prices low and leaves the Bank of Canada with room for an interest rate cut next week. Several economists have predicted there will be a half-point cut.
"This benign report simply reinforces the point that Canadian inflation remains an oasis of calm amid raging global price pressures," said Pascal Gauthier, an economist at TD Bank.
"Seasonally, March is supposed to be a month of significant Canadian price increases, but other than gasoline, that simply didn't happen this year," said Avery Shenfeld of CIBC World Markets.
The Bank of Canada's core rate, which strips out volatile items, was 1.3 per cent last month, down from 1.5 per cent in February. The central bank uses this rate to gauge underlying trends in the economy and it is a key factor in setting interest rates.
"Against the benign inflation backdrop, we expect the bank 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 the Royal Bank.
Desjardins predicted a half-point cut, which would drop the bank's key rate to 3.0 per cent, a level not seen since October 2005.
The statistics agency said the main inflationary factors in March were higher mortgage costs and rising gasoline prices.
Mortgage costs were up 8.3 per cent as higher prices for new homes helped drive up overall mortgage costs.
Gasoline prices at the pump rose 7.9 per cent, but that was well below the 17.1 per cent jump recorded in February.
On a month-to-month basis, prices rose 0.4 per cent between February and March.
While the inflation rate slowed overall, the price of fuel oil and other fuels soared 29.6 per cent between March 2007 and last month, the steepest jump since 2005, when hurricanes in the Gulf of Mexico played havoc with oil production.
Homeowner replacement costs, the cost of upkeep and maintenance, were up 4.8 per cent nationally, but spiked up 46.7 per cent in Saskatchewan, where a fast-growing resources sector has heated the housing market.
The price of bakery products rose 9.0 per cent on the heels of rising wheat prices. The world price for top-grade wheat more than doubled between March 2007 and last month, the sharpest spike in a quarter century.
The main mitigating factor in March inflation was lower prices for cars, which slid 7.1 per cent.
The cost of fresh fruits and vegetables also fell as the strong Canadian dollar kept import prices down.
"The loonie at par remains the dominant factor holding back the tidal surge in commodity prices," said Douglas Porter, an economist at the Bank of Montreal.
