OTTAWA — The Canadian dollar hit its strongest level since January on Friday after a surprise jump in domestic inflation and strong retail sales data.
The pace of Canada’s annual rate of inflation quickened in March, as higher food costs countered lower gas prices at the pumps — supporting the Bank of Canada’s view that price increases could stay near its target.
The consumer price index rose 1.2 per cent last month, Statistic Canada said Friday, above the one-per-cent forecast of most economists.
Data also revealed that retail sales in Canada posted a gain of 1.7 per cent in February following two consecutive monthly declines.
At 8:40 a.m. the loonie was at 82.44 U.S. cents. It got to C$1.2088 at one point, its strongest level since Jan 21.
Core inflation reading — stripping out many volatile items, such as energy and food products, which the Bank of Canada uses to gauge underlying price trends — jumped 2.4 per cent in March, after a 2.1-per-cent increase the previous month.
Most analysts had expected the core reading to be unchanged at one per cent in March.
“By every measure, there is solid breadth to price gains with almost every category of prices higher in March,” said Derek Holt, vice-president at Scotiabank Economics.
Not surprisingly, lower gas prices “continued to be the largest downward contributor” to CPI, Statistics Canada said, falling 19.2 per cent year-over-year in March. However, last month’s drop was weaker than the 21.8-per-cent plunge in February.
The largest annual price increase was in food, which was up 3.8 per cent from March last year.
Overall, consumer prices rose in eight provinces on an annual basis. Ontario saw the largest rise — up 1.6 per cent — driven to a 25.7-per-cent jump in natural gas costs. “This year-over-year increase mainly reflected a 33-per-cent monthly rise in natural gas prices in April 2014, which followed prolonged cold weather,” Statistics Canada said.
No surprisingly, resources-heavy Alberta took the brunt of the energy-related declines in prices.
Overall inflation declined 0.1 per cent in the province during March from a year earlier, led by a 42.4-per-cent drop in natural gas prices, which tend to fluctuate in the province. Last month’s year-over-year decline, for example, followed a spike of 49.6 per cent in April.
The Bank of Canada, in its quarterly Monetary Policy Report issued Wednesday, forecast annual price increases to close in on policymakers’ two-per-cent target by the end of 2016 — about the same time that the output gap in the economy, the difference between potential and actual activity, is expected to close.
Also Wednesday, the central bank held its trendsetting interest rate steady at 0.75 per cent, in line with economists’ expectations. After a surprise cut in January from the longstanding rate of one per cent, bank governor Stephen Poloz indicated the current lending might provide enough insurance for the time being against any shocks to the economy.
“The impact of the oil-price shock on growth will be more front-loaded than predicted in January,” Poloz said.
“Underneath the effects of the oil-price shock, the natural sequence of stronger non-energy exports, increasing investment and improving labour markets is progressing.”
In its Monetary Policy Report, the bank cut its first-quarter forecast to zero from the 1.5-per-cent estimate in January. Policymaker also raised their outlook for the second quarter to 1.8 per cent from 1.5 per cent.
Many economists have removed another rate the table, taking their cue from Mr. Poloz that the impact from low crude prices — now trading at a slightly stronger level just above US$50 a barrel — could be contained in the first quarter of this year.
Crude oil, Canada’s biggest export product, has lost about half its value in the past year — a reality that the federal and provincial governments must address as revenues decline and employment shifts away from the oil patch.
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