The pace of inflation slowed somewhat in Canada last month, Statistics Canada says, with the annual rate dipping to 1.2 per cent in March.

Rising food and shelter costs across the country were offset by cheaper gas and cars in March, StatsCan reports.

The rise in consumer prices was slower than the 1.4 per cent inflation in February and seems to re-establish a recent trend toward lower inflation.

Core inflation, which excludes the most volatile prices such as fuel prices, rose 2.0 per cent -- close to economists' forecasts.

Statistics Canada says food prices rose 7.9 per cent over the 12-month period to March -- the largest increase since November 1986. Prices for fresh vegetables shot up 26.5 per cent and fresh fruit cost 19.3 per cent more than last year.

Potatoes were particularly more expensive. They were up a whopping 54.9 per cent over the year, largely as a result of poor harvests that reduced supply.

Shelter costs, the second largest factor in the annualized inflation rise, advanced 2.1 per cent in March compared to last year. While shelter costs are still a major contributor to consumer price growth, the 12-month change i has slowed since reaching a peak of 5.4 per cent in July 2008.

Meanwhile, gasoline prices fell 21 per cent year-over-year, and continued to drive overall transportation costs down. StatsCan says the drop in the price of gas was due more to high prices in 2008 than to recent developments.

Growth in consumer prices slowed in all provinces in March except the two most populous, Ontario and Quebec.

On a seasonally adjusted basis -- the best indicator of month-to-month consumer price movement -- prices actually fell, compared to a month earlier. The CPI dropped 0.3 per cent from February to March, after rising 0.4 per cent the previous month.

The drop was mainly due to a 0.5 per cent decline in shelter costs, but was partly offset by higher prices for food. Excluding food and energy, the seasonally adjusted monthly CPI posted no growth from February to March.

CIBC World Markets senior economist Meny Grauman told BNN that he thinks the numbers are generally good.

"Overall, the story here is Canada doesn't have an inflation problem, we don't have to worry about inflation. And we're not really at risk of deflation," he said. "So we're in a relatively good sweet spot, everything considered." 

The Bank of Canada cut its benchmark interest rate last month to a record low of 0.5 per cent. Policy makers are expected to leave it unchanged when they meet again on April 21.