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Canada Inflation Rate Slows to 1% in March on Gasoline

Canada’s inflation rate slowed to the bottom of the central bank’s target range last month as gasoline prices dropped, further evidence that slack is building up in the world’s 11th-largest economy.

The consumer price index rose 1 percent in March from a year ago following a 1.2 percent gain the prior month, Statistics Canada said today from Ottawa. The core rate, which excludes eight volatile products, was unchanged at 1.4 percent. Economists surveyed by Bloomberg forecast that the total rate would be 1.1 percent and core would be 1.4 percent.

The Bank of Canada said April 17 that inflation will remain below policy makers’ 2 percent target until the second quarter of 2015 as weak investment and government spending curb output gains. The bank’s benchmark interest rate has been 1 percent since September 2010 and policy makers aim to keep inflation in the middle of a 1 percent to 3 percent band.

“Both inflation and growth have much more consistently surprised to the low side than the high side in recent months, and that trend continues today,” Doug Porter, chief economist in Toronto at Bank of Montreal, wrote in a note to clients.

Statistics Canada gave further evidence of a weak economy today in a report showing wholesale sales stalled in February at C$48.8 billion as declines for computers and toiletries countered gains at automobile dealers.

Canadian Dollar

The Canadian dollar was little changed at C$1.0256 per U.S. dollar at 10:19 a.m. in New York. One Canadian dollar buys 97.50 U.S. cents.

The Bank of Canada on April 17 cut its 2013 growth forecast to 1.5 percent from 2 percent, citing weakness in business and government spending. Policy makers still expect the pace of growth to accelerate, led by investment and exports that slumped late last year.

The inflation report showed gasoline prices fell 0.3 percent from a year earlier in March, after they gained 3.9 percent in February. The cost of health and personal care products were unchanged.

“It has to do with how far away Canada is from its productive capacity,” Ian Pollick, a fixed-income strategist at Royal Bank of Canada’s RBC Capital Markets unit, said by phone from Toronto. The risk of slower inflation may lead policy makers to drop their bias to raise rates, he said.

On a monthly basis, total inflation and core prices both rose 0.2 percent in March. Clothing and footwear prices grew 4.3 percent on the month, Statistics Canada said. Economists surveyed by Bloomberg predicted that the total monthly rate would advance 0.3 percent and core by 0.2 percent.

The monthly inflation rate slowed from February’s 1.2 percent, which was the fastest since January 1991 when the country implemented a new sales tax.

Seasonally adjusted inflation rose 0.1 percent in March and the adjusted core rate rose 0.2 percent.

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