Canada’s inflation rate cools to 1.8%, but pressures loom

Canada’s annual inflation rate eased to 1.8 per cent in February, according to new data from Statistics Canada, marking a slowdown from earlier in the year and bringing price growth below the Bank of Canada’s two‑per‑cent target.

The decrease was influenced as prices were temporarily pushed higher a year ago when a federal GST break ended midway through the month. That comparison helped pull down the year‑over‑year figure, even as some costs continued to rise.

Food prices showed the most significant deceleration, largely due to slower increases in the cost of fresh and frozen beef.

Despite the moderation, Statistics Canada notes grocery prices remain dramatically higher than before the pandemic, having climbed more than 30 per cent since February 2021.

Economists warn that February’s report does not yet reflect the full impact of the conflict in Iran, which began on the final day of the month. In response to the conflict, energy prices surged in early March, setting the stage for a potential rebound in inflation.

BMO’s chief economist, Douglas Porter, says gasoline prices could rise sharply in the next report, potentially by as much as 15 per cent.

 If that happens, he expects headline inflation to move back toward the three‑per‑cent range in the coming months, reversing some of February’s progress.

The Bank of Canada is expected to give it’s latest interest rate adjustment later this week on Wednesday.