Photographer: Ben Nelms/Bloomberg

Weak Canadian Inflation Backs Poloz's View of Slack Economy

  • Central bank’s core measures weaken in March from year earlier
  • Monthly and annual CPI readings trailed economist estimates

Canada’s inflation rate slowed more than economists forecast in March as food and clothing prices declined. Measures of core prices also sagged, underlining Bank of Canada Governor Stephen Poloz’s concern that excess slack remains in the economy.

Key Points

  • The consumer price index rose 1.6 percent in March from a year ago compared with a rate of 2 percent the prior month, Statistics Canada said Friday from Ottawa. Economists surveyed by Bloomberg forecast the rate would rise 1.8 percent.
  • Prices rose 0.2 percent on a monthly basis, lagging the 0.4 percent median economist forecast.
  • The average of the Bank of Canada’s three core inflation measures was 1.5 percent, and the February average was revised down to 1.5 percent from 1.6 percent.
  • The ‘common’ core rate was 1.3 percent in March, the ‘median’ core rate was 1.7 percent and the ‘trim’ measure was 1.4 percent.
  • The median core measure was revised for February to 1.8 percent from 1.9 percent, and trim was revised to 1.5 percent from 1.6 percent.

Erik Hertzberg/Bloomberg

Big Picture

Bank of Canada policy makers said April 12 core inflation measures have been “drifting down in recent quarters” and along with slow wage growth was consistent with “material excess capacity in the economy.”

Poloz pointed to those indicators to say the bank needs more sustained evidence to be confident the recovery is on a firm footing.

The governor also said the U.S. economy is further along than Canada’s. That hasn’t stopped some private economists from advancing predictions for a rate hike next year, as output and jobs pick up.

Economist Reaction

“It fits their narrative, and this notion there is no rush to hike,” at the
central bank, Jimmy Jean, a strategist in the fixed-income group at Desjardins
Capital Markets in Montreal, said by phone. “That neutral stance can be
expected to be kept for some time.”

Other Details

  • Food prices fell for a sixth straight month, with a 1.9 percent decline for March.
  • Gasoline prices gains moderated, with a 15.2 percent March gain following February’s 23.1 percent jump
  • Clothing and footwear prices swung to a 0.9 percent decline in March, from a gain of the same magnitude the prior month
  • Transportation costs were a main driver of inflation in March, even as the pace of price gains slowed to 4.6 percent from 6.6 percent

— With assistance by Erik Hertzberg

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