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OTTAWA, May 19 (Reuters) - Canada's annual inflation rate held steady in April as a seventh consecutive decline in food prices offset higher gasoline, while March retail sales rose more than expected, suggesting consumer spending held up as the economy headed into the second quarter.
Economists said the reports released by Statistics Canada on Friday were not likely to move the Bank of Canada off the sidelines when it meets next week. The central bank is widely expected to hold rates at 0.5 percent, where they have been since 2015.
The annual inflation rate held at 1.6 percent, just missing economists' forecasts of an uptick to 1.7 percent, while the measures of core inflation the Bank of Canada set last year remained muted.
That is likely to prompt the central bank to hold rates where they are for some time, despite Canada's strong housing market and rate hikes from the U.S. Federal Reserve, economists said.
"The fact that core (inflation) remains so muted is a fairly strong argument in favor of not following any lead by the Fed in the immediate future," said Doug Porter, chief economist at BMO Capital Markets.
The central bank, which has an overall inflation target of 2 percent, has pointed to material slack in the economy.
The Canadian dollar trimmed some of its gains against the greenback immediately following the reports.
CPI (Consumer Price Index) common, which the central bank says is the best gauge of the economy's underperformance, held at 1.3 percent.
CPI median, which shows the median rate across the various components, edged down to 1.6 percent. CPI trim, which excludes upside and downside outliers, dipped to 1.3 percent.
Higher gasoline prices compared to a year ago were offset by a 1.1 percent decline in food amid cheaper fresh fruit and vegetables, meat and dairy products. Still, the downward pace moderated from the previous month's annual 1.9 percent drop.
Retail sales rose 0.7 percent, exceeding forecasts of 0.4 percent, driven by increased purchases at new and used cars dealers. Stripping out the effect of price changes, volumes were even more robust, up 1.2 percent.
The economy is expected to have grown by upwards of 3 percent in the first quarter. The gain in retail sales suggests that the economy is continuing to be supported by consumers, said Jimmy Jean, senior economist at Desjardins.
"It does appear that it will extend a bit into the second quarter," he said.
Additional reporting by Susan Taylor and Matt Scuffham in Toronto; Editing by Chizu Nomiyama