OTTAWA, April 21 (Reuters) - Canada's annual inflation rate
doubled to 2.2% in March, Statistics Canada said on Wednesday,
as the central bank signaled economic slack would likely be
absorbed earlier than it had previously forecast.
Previously, the Bank of Canada had said it would be 2023
before inflation returned sustainably to its 2% target. On
Tuesday, the central bank said it would happen in the second
half of next year. In the meantime, inflation would temporarily
breach its target, the bank said.
Part of the March price bounce is due to a statistical
effect caused by a sharp deceleration last year during the
coronavirus pandemic, Statscan said.
The bank also held its key overnight interest rate at a
record low 0.25% as expected.
Analysts polled by Reuters had expected the annual rate to
rise to 2.3% in March, up from 1.1% in February. Energy prices
gained 19.1% on a year-on-year basis, while inflation excluding
gasoline and food rose 0.9% versus a year ago.
"The headline spike, as expected, is largely an energy
story, but there are some signs that underlying pressures are
starting to show up," said Nathan Janzen, senior economist at
the Royal Bank of Canada.
"The Bank of Canada's core measures also moved higher on the
month, with two of them very slightly above the Bank of Canada's
midpoint 2% inflation target," Janzen said.
CPI common, which the central bank calls the best gauge of
the economy's underperformance, was 1.5%, slightly higher than
the 1.4% forecast by analysts.
CPI median rose to 2.1% from 2.0% in February, and CPI trim
was 2.2% in March, up from a revised 2.0% in the previous month.
But Derek Holt, vice president of capital markets economics
at Scotiabank, said the annual rate is not being driven solely
by a statistical effect.
"This isn't just base effect-driven, it's pretty remarkable
resilience in terms of underlying inflation pressures," he said.
The bank now expects Canada's economy will grow 6.5% in
2021, up from its January forecast of 4.0%, with real GDP growth
of 3.7% in 2022, down from a previous forecast of 4.8%.
After the Bank of Canada announcement, the Canadian dollar
strengthened 0.9% to 1.2499 to the greenback, or 80.01
U.S. cents, its biggest gain since last June.
(Reporting by Steve Scherer; Editing by Paul Simao and Alistair