Canada’s March Inflation Rate Rebounds to 1.5% on Energy

Canada’s inflation rate rebounded in March as rising energy prices triggered the biggest gain in shelter costs in more than three years.

The inflation rate returned to 1.5 percent after slowing to 1.1 percent in February, Statistics Canada said today in Ottawa. The core rate, which excludes eight volatile products, increased 1.3 percent after a 1.2 percent gain the prior month. Total inflation was faster than the 1.4 percent median forecast of economists surveyed by Bloomberg News, while core inflation met the consensus.

Bank of Canada Governor Stephen Poloz said yesterday he will dismiss faster inflation this year as temporary while the underlying trend remains “subdued.” Slack in the economy that will damp inflationary pressure kept Poloz “neutral” about his next move in his trend-setting interest rate, which has been 1 percent since September 2010.

“It’s not so easy to dismiss what we are seeing” from today’s rise in inflation to recent gains in employment and output, said Mark Chandler, head of fixed-income research at RBC Capital Markets in Toronto. “I’m a little bit worried about the notion of excess slack being sufficient to keep core inflation low.”

Canada’s dollar strengthened 0.2 percent to C$1.0995 per U.S. dollar at 10:10 a.m. in Toronto. Bond yields rose, with the five-year security rising to 1.70 percent from 1.66 percent.

Shelter Costs

Shelter costs, which make up 26 percent of the consumer price index basket, rose 2.7 percent in March from a year earlier, the fastest since December 2010.

Natural gas costs jumped 17.9 percent led by a price increase in the province of Alberta, while fuel oil costs rose 9.1 percent and electricity by 5.0 percent. Major storms and some of the coldest temperatures in decades gripped much of Canada last winter.

Food inflation advanced 1.5 percent led by fresh meat and produce, and cigarette prices jumped 7.6 percent after a federal tax increase, Statistics Canada said.

“It will be harder for the Bank to say that the downside risks to inflation remain important” as inflation moves closer to 2 percent, said David Tulk, chief Canada macro strategist at Toronto-Dominion Bank’s TD Securities unit.

Inflation has remained below the Bank of Canada’s 2 percent target for 23 straight months, and the central bank yesterday said it will return to that goal in the first quarter of next year, advancing its January prediction by about nine months. Core inflation won’t reach 2 percent until the first quarter of 2016, the bank forecast.

Retail Competition

Policy makers have cited downward pressure on prices as U.S. merchants such as Wal-Mart Stores Inc., Target Corp., and Nordstrom Inc. expand in Canada.

“We experienced some cost inflation in meat and produce, mostly due to foreign exchange, which we were not able to completely pass through at retail because of the competitive market,” Eric La Fleche, chief executive officer of Montreal-based grocery chain Metro Inc., said on an earnings call yesterday.

On a monthly basis, total inflation rose 0.6 percent in March and the core rate rose 0.3 percent. Economists surveyed by Bloomberg predicted monthly prices would rise 0.4 percent and the core rate would increase 0.3 percent.

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

The number of Canadians receiving jobless benefits rose by 0.6 percent in February, Statistics Canada said in a separate report today. From the year-ago month, the total number of beneficiaries fell 4.9 percent, or by 25,880.

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