Canada annual inflation slows to 1.8 percent in February
Canada's annual inflation fell to 1.8% in February due to base-year effects. Markets now watch rising oil prices from the Iran war ahead of a rate decision.
Canada's annual inflation rate cooled to 1.8% in February, a deceleration largely attributed to the expiration of previous government sales tax relief. Statistics Canada reported on Monday that the Consumer Price Index rose 1.9% year-over-year when excluding the impact of indirect taxes. While the current figures indicate a stabilization of prices, economists warn that rising crude oil prices resulting from tensions in Iran may soon influence inflation expectations.
The Bank of Canada has held its benchmark interest rate at 2.25% since October, as inflation has generally settled near its 2% target. Market analysts expect the central bank to provide further guidance on inflationary pressures during its upcoming policy meeting. Katherine Judge, a senior economist at CIBC Capital Markets, suggested that the current data provides some breathing room for officials.
The tame report will be welcomed by policymakers ahead of the energy price shock, as it shows that labour market slack is keeping a lid on core prices, with the issue for the BoC being how long the oil price shock lasts for and its magnitude.
Food prices continue to be a primary source of financial pressure for households, rising 5.4% on an annual basis. Costs for food purchased at restaurants jumped 7.8% last month, while grocery prices increased 4.1%. Over a five-year period, grocery costs have surged by 30%, driven by supply chain constraints and trade policies from the United States. Major consumer goods entities, such as Colgate-Palmolive Company, have faced similar pressures as they manage global supply logistics and fluctuating raw material costs.
Shelter costs, the largest portion of the inflation basket, grew at a slower rate of 1.5% in February as mortgage pressures eased, though rental prices climbed 3.9%. Gasoline prices fell 14.2% year-over-year, continuing a trend linked to the removal of carbon taxes on fuel. Core inflation metrics, such as the CPI-median and CPI-trim, both remained at 2.3%, reflecting steady underlying price movements.
In the currency markets, the USD/CAD pair saw the Canadian dollar strengthen by 0.28%, trading at $1.3679 or 73.10 U.S. cents. Simultaneously, yields on two-year government bonds dropped 6.5 basis points to 2.731%.
