Gas and air ticket prices help push Canada’s inflation rate to 2.3%

By Staff, with files from The Canadian Press | April 20, 2018 | Last updated on April 20, 2018
2 min read

The country’s annual inflation rate continued creeping higher last month to hit 2.3%, Statistics Canada said Friday.

The March figure shows the pace of inflation inched a little farther past the midpoint of the central bank’s ideal range of between 1 and 3%.

By comparison, inflation was 2.2% in February and 1.7% in January. The March increase was the largest year-over-year move since it hit 2.4% in October 2014, just as the oil-price slump was getting underway.

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 2% last month.

Read: IMF forecasts slower Canadian growth relative to U.S.

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.

But the recent readings above 2% are unlikely to have a major impact on upcoming interest-rate decisions because the central bank is now expecting them.

Earlier this week, the central bank said that due to the temporary effects of higher gas prices and minimum wage increases it has raised its inflation projections. The bank is now expecting the measure to average 2.3% this year before settling back down to 2.1% in 2019.

Bank of Canada Governor Stephen Poloz has raised the benchmark interest rate three times since July and is expected to remain on his rate-hiking path with the economy operating close to its capacity.

But Poloz hasn’t moved the rate since January, including his most-recent announcement Wednesday. Poloz said that despite the recent improvements, the economy’s still unable to continue running at full tilt without the stimulative power of lower rates—for now.

The rising inflation data are “being buoyed by the effects of higher minimum wages in some provinces and by the recent run-up in oil prices, neither of which are signposts of an economy at risk of overheating,” said Royce Mendes, senior economist at CIBC Economics, in a research note.

In a separate report Friday, Statistics Canada said retail sales increased 0.4% in February to $49.8 billion, with the biggest increases coming from new car dealers and general merchandise stores.

Also read:

What investors can learn from Q1 results

How to rise above rising rates

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Staff, with files from The Canadian Press

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