Canada's Annual Inflation Rate Eases to 1.8% in February Ahead of Expected Energy Shock

  • Canada's annual inflation rate fell to 1.8% in February, after prices in the same period a ‌year ago had risen sharply when the government's sales tax relief ended, Statistics Canada highlighted. Excluding the effect of indirect taxes, the Consumer Price Index rose 1.9% year-over-year in February, it said.
  • While the inflation data for March will be the final month affected by the base-year effect ​of the sales tax break, rising crude oil prices as a result of the Iran war are likely to ​change inflation expectations. Economists polled by Reuters had expected inflation to fall to 1.9% year-over-year in February ⁠from 2.3% in January, and 0.7% month-over-month compared with no change in the prior month. On a monthly basis, consumer prices ​rose by 0.5% in February.
  • The Bank of Canada (BoC) has held its key policy rate at 2.25% since October, as inflation ​stabilised around its 2% target within a 1-3% control range. The BoC will give some indication of inflationary pressures at its policy decision on Wednesday.
  • Despite the base year effect, food prices in February rose ‌by 5.4% ⁠on an annual basis as food purchased at restaurants increased by 7.8% last month. Food prices have remained a major pressure point for Canadian households, as grocery prices have risen faster than overall inflation due to U.S. President Donald Trump's tariffs, bad weather conditions and supply chain issues.
  • Grocery prices rose 4.1% in February after a 4.8% rise observed in January, and the statistics agency said they have risen by 30% in the last five ⁠ Gasoline prices decelerated by 14.2% in February due to the continued impact of the removal of a carbon tax on the fuel, which reduced the year-over-year price. This impact will stay until April, StatsCan said.
  • Economists and the Bank of Canada closely watch core measures of inflation to gauge underlying price pressures. The CPI-median, the centermost ⁠component of the CPI basket, was 2.3%, while CPI-trim, which excludes the most extreme price changes, was also at 2.3%.
  • The Bank of Canada has held its key policy rate at 2.25% since October, as inflation ​stabilised around its 2% target within a 1-3% control range. The BoC will give some indication of inflationary pressures at its policy decision on Wednesday.

(Source: Reuters)