OTTAWA (Reuters) – Canada’s annual inflation rate tumbled to a near five-year low in March as gas prices plunged while analysts said the relevance of future data could be affected because of disruption caused by the coronavirus outbreak.
Statistics Canada said on Wednesday that the annual rate plunged to 0.9% from 2.2% in February as the COVID-19 outbreak and an oil supply war hammered the energy sector. Analysts in a Reuters poll had forecast a rate of 1.2% in March.
Excluding gasoline prices, the annual inflation rate was 1.7% in March.
“A sharp contraction in March that was more pronounced than expected but not a shock given the severe impact on the economy of stay-at-home orders and the tumble in oil prices,” said Ryan Brecht, a senior economist at Actions Economics.
The rate was the lowest since the 0.9% registered in May 2015. The Bank of Canada last week said overall inflation was likely to drop to around 0% in the second quarter.
Doug Porter, chief economist at Bank of Montreal, said there might be negative inflation in the months ahead.
“It will have been very difficult to have collected prices during the month of April. After this month, the data are going to be a little bit suspect,” he said by phone.
Officials have shuttered non-essential businesses and urged people to stay at home since mid-March.
Statscan said the March data collection was largely unaffected by the coronavirus pandemic. It has also adopted measures to “reflect the limitations faced by Canadian consumers”, such as excluding information on air fares given people had not been able to travel.
CIBC Senior Economist Royce Mendes said future data would “be less representative of the actual consumer experience” given the indicator uses prices for many products and services that are likely not being purchased by most households.
The Canadian dollar strengthened to about C$1.4130 per U.S. dollar, or 70.77 U.S. cents, as oil prices rebounded after earlier hitting a 21-year low.
Energy prices in March fell 11.6% on a year-over-year basis, driven by the largest one-month price decline since November 2008. Consumers paid 21.2% less for gasoline than in March 2019.
CPI common, which the central bank says is the best gauge of the economy’s underperformance, was at 1.7%. CPI median, which shows the median inflation rate across CPI components, was at 2.0%, while CPI trim, which excludes upside and downside outliers, was at 1.8%.
(Reporting by Kelsey Johnson and David Ljunggren; Additional reporting by Fergal Smith, Moira Warburton and Nichola Saminather in Toronto; Editing by Bernadette Baum and Lisa Shumaker)