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Consumer prices rose 1.4% on average in the 12-months to March, the fourth consecutive month in which the rate of growth has decelerated. This was the slowest rate of growth since January 2007.

The main upward factor in March was mortgage interest cost, which rose 8.3%, while gasoline prices were the second most significant contributor.

Prices at the pump rose by 7.9% between March 2007 and March 2008, less than half the rate of growth of 17.1% during the previous month. If pump prices are excluded, the all-items CPI increased 1.0% between March 2007 and March 2008.

The 12-month change in the Bank of Canada’s core index, which is used to monitor the inflation control target, rose 1.3% in March, down from the 1.5% increase in February. This deceleration is mostly attributable to lower prices for automotive vehicles.

If the seasonal effect is excluded, the all-items index and the core index remained unchanged between February and March 2008.

Seasonally unadjusted consumer prices rose 0.4% between February and March 2008, the same rate posted in the preceding month. The core index grew by 0.2% between February and March 2008, a slowdown compared to the 0.5% increase posted during the previous period.

12-month change: Reduced upward pressure from gasoline prices

Gasoline prices exerted less upward pressure on the all-items index than they did in February. Pump prices increased 7.9% between March 2007 and March 2008, compared to the 17.1% gain in February.

This slowdown reflected the fact that gasoline prices in March this year increased at a slower pace than they did in March last year. In spite of its relative loss of speed, pump prices were the second biggest contributor to the 12-month increase in the all-items CPI.

Although recent months have seen a rapid increase in the price of crude oil on the global market, Canadians have witnessed a slower rise in gasoline prices. A high flying Canadian dollar may have helped to mitigate the rise in the cost of crude oil in Canada, which is likely to have been translated into a slower 12-month rise in prices for gasoline. High levels of gasoline inventories may also have helped to soften the increase in gasoline prices in Canada.

The price of fuel oil and other fuels, which are also derivatives of oil, increased a whopping 29.6% in the 12 months to March 2008. This is the steepest jump in prices since September 2005, when hurricanes Katrina and Rita provoked a sharp rise in prices. The biggest increases in the price of fuel oil and other fuels occurred in the provinces east of Ontario where prices rose between 27.6% and 37.0%.

The main contributor to the 12-month rise in the all-items index in March was mortgage interest cost, up 8.3%, slightly more than the 8.1% posted in February. This is the ninth straight monthly increase in this index and is due more to the slower monthly growth in this index at the same period last year than to any recent acceleration. The upswing in prices of new housing in March continued to put more upward pressure on mortgage interest cost rather than changes in interest rates.

Homeowners’ replacement cost, which represents the cost of maintaining a housing structure, was up 4.8% between March 2007 and March 2008, the same increase noted in February. New housing costs were up in all parts of the country compared to the same period last year. Homeowners’ replacement cost surged the most in Saskatchewan (+46.7%). With the fast growing natural resource sector, the Saskatchewan real estate market appears to be experiencing the strongest growth in the country. According to a CMHC report, Saskatchewan posted the strongest 12-month performance on several indicators in the real estate sector in 2007, including total housing starts, single-family dwelling starts, multi-family dwelling starts, sales of existing housing and average price of existing housing.

The price of bakery products increased by 9.0% in the year to March 2008. This jump occurred at a time when world wheat prices appreciated considerably. Reports indicate that the price for No. 1 grade wheat soared 120.9% between March 2007 and March 2008, the sharpest price increase in 25 years.

The 7.1% slide in vehicle purchase and leasing prices was the main factor mitigating these upward pressures. This decline is linked to the increase of incentives on most models and to the relatively low manufacturer’s suggested retail prices compared to March 2007. It follows on the heels of a 6.8% drop in February 2008.

Prices for computer equipment and supplies fell 14.9% in March, following a 15.4% decline in February. Lower prices for laptop computers were the main force behind the decline observed in February. The drop in prices for central processing units for desktop computers was less in March compared to February. This downward movement was consistent with the long-term trend of this index, which reflects in part technological advances and competition in this sector.

The price of fresh vegetables fell 17.8% in March 2008 compared to March 2007, the largest decrease in 12 years. Fresh vegetable prices were relatively higher in March 2007 because of a frost in California. The appreciation of the dollar between March 2007 and March 2008 may also have helped to lower costs for imported vegetables.

Prices for fresh fruit fell by a substantial 11.3% between March 2007 and March 2008, mainly in response to lower prices for citrus fruits, grapes and cantaloupes. The decline was fuelled in part by increased harvest yields this year and the appreciation of the Canadian dollar.

Women’s clothing prices fell by 4.3% in the year to March 2008, a larger decline than the 3.0% decrease posted in the previous month.

Consumer prices in Ontario rise by less than 1%

In March, consumer prices were up by only 0.8% in Ontario, a much slower growth than the 1.5% posted in February. This province had the smallest consumer price increase. In Alberta, consumers paid 2.9% more on average in March this year than they did a year earlier, compared with 3.5% in February.

A slower rise in gasoline prices was mainly responsible for these downturns. Gasoline prices, however, varied significantly across provinces and the provincial discrepancies can be largely explained by differences in costs for transportation, distribution and local market conditions.

Consumers in Saskatchewan faced the highest 12-month increase (+3.2%), due mainly to the rise in homeowners’ replacement cost and gasoline prices.

Monthly change: Rise in all-items index sustained by higher gasoline prices

Seasonally unadjusted consumer prices rose by 0.4% between February and March 2008, unchanged from the rate of growth posted for the previous period.

The main factor in the monthly increase was a 3.6% jump in gasoline prices, partly the result of gains in the price of crude oil. The price of gasoline surged 12.4% in this same period last year.

Higher prices for women's clothing (+3.0%) also contributed to the rise in consumer prices, albeit to a lesser extent. This upward movement occurred as the new spring collections were introduced to the market.

Canadians had to pay 8.6% more for fuel oil and other fuels in March than in February 2008. This increase reflects to some extent lower inventories at the end of winter and higher crude oil prices.

Mortgage interest costs rose 0.6% between February and March. This was a slowdown from the 0.8% recorded the previous period, the result of a decline in rates at which mortgages were renewed and initiated.

Amongst the factors dampening the monthly rise in prices were a 0.8% decline in prices for motor vehicles and a 2.8% decline in the cost of traveller accommodation.

The downward movement in vehicle prices was due to higher incentives offered on some models by manufacturers.

The 12-month Core index edges down

The Bank of Canada’s core index was up 1.3% in the 12 months to March 2008, a deceleration compared to the 1.5% increase observed in February. This slowdown is mainly attributable to the stronger decrease of prices for motor vehicles compared to February. The 1.3% increase of the core index is the slowest observed since July 2005.

The core index is obtained by removing the effect of the changes in indirect taxes from the all-items CPI from which the eight most volatile components identified by the Bank of Canada have been excluded. These volatile components are fruit, fruit preparations and nuts; vegetables and vegetable preparations; mortgage interest cost; natural gas; fuel oil and other fuels; gasoline; inter-city transportation; and tobacco products and smokers’ supplies.

Between February and March 2008, the unadjusted core index rose 0.2%, a slowdown following the 0.5% hike posted during the previous month. This deceleration was mostly the reflection of the decline in prices for traveller accommodation, which rose 5.0% in February followed by a 2.8% drop in March.

12-month energy index slows as a result of slower growth in gasoline prices

In the context of slower growth in gasoline prices (from 17.1% in February to 7.9% in March), the 12-month energy price index eased (from 9.7% in February to 5.4% in March). The sharp slowdown in gasoline prices was due more to the steep rise in this index last year than to a recent change in pump prices. Price increases for fuel oil and other fuels (+29.6%) and, to a lesser extent, for natural gas (+1.3%), also exerted upward pressure on the 12-month change in this index. A slight decrease in electricity prices (-0.7%) partially offset these upward contributors.

On a monthly basis, the energy index increased by 2.7% between February and March, a strong appreciation compared to the 0.3% rise posted in the previous period. This acceleration is mainly due to a revival of gasoline prices (from 0.6% in February to 3.6% in March), fuel oil and other fuels (from –0.9% in February to 8.6% in March) and natural gas (from 0.2% in February to 2.2% in March).

Seasonally adjusted CPI remained unchanged between February and March

On a seasonally adjusted basis, the all-items CPI remained unchanged between February and March 2008, a slowdown compared to the 0.1% increase recorded during the previous period. Upward pressures came from components such as transportation (+0.7%), shelter (+0.4%) and health and personal care (+0.3%). These upward pressures were completely offset by downward pressures that came from clothing and footwear (-0.4%), alcoholic beverages and tobacco products (-0.3%), household operations, furnishing and equipment (-0.2%) and recreation, education and reading (-0.1%).

The seasonally adjusted core index also remained unchanged between February and March 2008 after increasing 0.3% in the previous period.