The country's annual inflation rate slowed to an unexpectedly weak 1.6 per cent last month as the continued decline in food prices played a big role in offsetting the higher cost of gasoline, Statistics Canada said Friday.
Locally, consumer prices in Ottawa mirrored the national trend as the inflation rate fell to 1.6 per cent in March, down from two per cent in February.
The agency's latest reading shows the pace of inflation decelerated from February's year-over-year reading of two per cent, which was right on the Bank of Canada's ideal target.
A consensus of economists had predicted 1.8 per cent inflation for March, according to Thomson Reuters.
The softer-than-expected reading followed months of better-than-expected economic data which prompted the Bank of Canada to boost its growth projection last week for the year to 2.6 per cent, up from its January call of 2.1 per cent.
"We really haven't seen any of that (stronger data) spill over into the inflation side," BMO senior economist Benjamin Reitzes said in an interview.
"Inflation does tend to be a bit of a lagging indicator, so it can take a little while to pick up. So, I would be surprised if this softer trend continues given the better run of data. But if it does, it does suggest that there's more room to run for the economy."
Statistics Canada's consumer price index showed some of the biggest downward forces on inflation were lower prices for clothing and footwear, which declined 0.9 per cent, and food, which fell 1.9 per cent.
A closer look at the data showed that, compared with a year earlier, the cost of fresh fruit dropped 12.4 per cent while fresh vegetable prices fell 10.2 per cent.
The agency said higher costs for transportation and shelter made big contributions to the upward pressure on prices. For example, gas prices increased 15.2 per cent last month.
Higher prices for travel tours, which rose at a 6.8 per cent rate, were also among the primary contributors to the change in inflation.
Excluding food and energy prices, the report said annual inflation was up 1.7 per cent last month, which follows a two per cent increase in February.
Across Canada, Prince Edward Island was the only province that saw its annual inflation rate accelerate last month.