Canadian Inflation Rises to 2.6% in February, Surpassing Expectations
Canada’s inflation rate climbed to 2.6% year-over-year in February, up from 1.9% in January. The reintroduction of GST and HST on eligible products after February 15 contributed to the increase, with consumer prices reflecting the additional tax burden.
While some acceleration was anticipated, the pace may still challenge the Bank of Canada’s (BoC) outlook. If the federal tax break had not been in effect, inflation would have hit 3%, pushing the upper limit of the BoC’s target range. Inflation has not exceeded 3% since late 2023.
Inflation Breakdown by Sector
The inflation increase was broad-based, with notable gains in recreation (+3.4%), food (+1.9%), clothing (+1.6%), and alcohol (+1.5%). Restaurant food prices saw a slower decline (-1.4%) compared to January (-5.1%), contributing to overall inflation. Similarly, alcohol purchased from stores fell by 1.4% in February, following a 3.6% decline in January.
Gasoline prices rose 5.1% year-over-year in February but showed slower growth compared to January’s 8.6% increase. On a monthly basis, gas prices edged up 0.6%, influenced by higher refining costs due to scheduled maintenance, offsetting lower crude oil prices.
Shelter costs increased just 0.2%, marking the smallest gain in five months, bringing annual growth to 4.2%. Mortgage interest costs also rose 0.2%, slowing to 9% year-over-year, ending a two-and-a-half-year streak of double-digit increases.
Policy Implications
Core inflation measures, CPI-Trim and CPI-Median, rose 2.9% year-over-year, indicating persistent price pressures. With more goods seeing 3%+ price hikes, inflation remains a challenge for policymakers. The BoC is expected to maintain a cautious approach, with upcoming rate decisions factoring in evolving economic conditions.
Looking ahead, the planned removal of the carbon tax in April should lower inflation. However, March may see a temporary increase as the tax holiday effects reverse. Economic uncertainty remains, and the BoC’s next rate decision on April 16 will be closely watched. Current market expectations lean toward holding rates steady, but evolving tariff developments could shift this outlook.
Stay tuned for further updates as the inflation landscape continues to unfold.
