Canada’s Core Inflation Rate Dips in March

A surprising drop in Canada’s inflation rate for March is raising hopes that the Bank of Canada will hold interest rates steady.

According to Reuters, Canada's annual core inflation rate dropped to 1.7 percent in March from 2.1 percent. Part of the drop is attributed to a drop in travel and accommodation prices following the Winter Olympics. Rate watchers had predicted the core rate would drop to 1.9%.

This week, the Bank of Canada suggested that interest rates are on the verge of an aggressive upswing. This, along with the introduction of new mortgage rules and the impending introduction of the HST in two of Canada’s largest provinces, is fuelling speculation of a downward turn in the housing market in the latter half of 2010.

The Bank of Canada has been noncommittal about when it plans to raise interest rates. In the Reuters report, Craig Wright, chief economist at the Royal Bank of Canada observed "I think we read what came out this week more as an indication that the Bank of Canada wanted complete flexibility in terms of when they go and this is one reason why they may have wanted that flexibility."

Reuters conducted a poll on Tuesday, in which 11 of Canada's 12 primary dealers predicted a rate hike of 25 basis points on June 1.
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