OTTAWA – The country’s annual inflation rate continued creeping upwards last month to reach 2.3 per cent, thanks to a boost from higher prices for gasoline and airline tickets, Statistics Canada said Friday.
By comparison, inflation was 2.2 per cent in February and 1.7 per cent in January. The March increase was the largest year-over-year move since it hit 2.4 per cent in October 2014, just as the oil-price slump was getting underway.
The March figure shows the pace of inflation inched a little farther past the midpoint of the central bank’s ideal range of between one and three per cent.
Experts, however, had been anticipating inflation to accelerate at an even faster pace in March and, earlier this week, the Bank of Canada raised its inflation projections for 2018.
The central bank predicted the temporary effects of higher gas prices and minimum wage increases would now see inflation average 2.3 per cent this year, before settling back down to 2.1 per cent in 2019.
The higher inflation expectations suggest the Bank of Canada can continue to proceed cautiously when it comes to the timing of its next interest-rate increase.
“The fact that inflation didn’t heat up as much as most economists had expected plays into the narrative that the Bank of Canada is going to be very patient with regards to future rate hikes,” Royce Mendes, CIBC World Markets director and senior economist, said in an interview.
“Now, even if inflation does accelerate over the remainder of the year, there’s still reason for the bank to be cautious on future rate hikes.”
TD senior economist James Marple wrote in a report Friday that there’s a high bar for inflation to jump over to get the central bank to move faster on raising rates. But Marple still expects one more hike this year, which would be consistent with the improved outlook for economic growth, both in Canada and globally.
The upward forces on inflation in March were led by higher costs for gasoline and air transportation, while cheaper prices for video equipment, digital devices and electricity applied downward pressure.
The report also said the average of the Bank of Canada’s three measures of core inflation, which are designed to leave out the noise of more-volatile items like gasoline, was two per cent last month. In February, the core readings averaged slightly above two per cent.
The Bank of Canada scrutinizes inflation data when it considers interest-rate decisions. Its rate hikes can be used as a tool to help prevent inflation from climbing too high.
Bank of Canada governor Stephen Poloz has raised the benchmark interest rate three times since last July and is expected to remain on his rate-hiking path with the economy operating close to its capacity.
Poloz believes Canada has a little more room to expand further, beyond what the bank sees as the economy’s potential growth, without driving up inflation.
But Poloz hasn’t moved the rate since January, including his most-recent announcement Wednesday. Despite the recent improvements, he said the economy’s still unable to continue running at full tilt without the stimulative power of lower rates — for now.
In a separate report Friday, Statistics Canada said retail sales increased 0.4 per cent in February to $49.8 billion.
Mendes said car purchases made the biggest contribution, but he cautioned that they tend to be volatile and rarely reflect the underlying trend. After stripping out auto sales, he said retail sales were flat in February.
Consumer purchases have been slowing down in recent months as households face higher costs for borrowing, stricter mortgage rules and large debt loads.
“This economy has been living on the backs of consumers and the housing market for many years now,” said Mendes said.
“We’re hoping, at some point, that we get a rotation towards investment and exports — however, the trend this year has not been so positive.”
On Friday, Statistics Canada also released revised estimates for its retail-trade figures from recent months. They show considerably weaker results and suggest consumers pulled back on spending.
The agency now estimates retail sales for November contracted 1.1 per cent compared with the previous month — a downward revision from the previous figure of 0.5 per cent growth. For December, it now says retail trade likely fell 1.2 per cent, deeper than the previous estimate of just a 0.7 per cent contraction.
The report also said retail sales grew by only 0.1 per cent in January, compared to the initial estimate of a 0.3 per cent expansion.
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