Canada: Inflation falls to over two-year low in February
Inflation came in at 2.8% in February, down from January’s 2.9%. February’s reading marked the weakest inflation rate since March 2021 and was well below market expectations of 3.1%. Inflation has now been within the Central Bank’s 1.0%–3.0% target range for two straight months. The reading was driven by a slower price rise for food and a sharper fall in clothing prices.
Accordingly, the trend pointed down mildly, with annual average inflation coming in at 3.4% in February (January: 3.6%). Meanwhile, core inflation fell to 2.1% in February, from the previous month’s 2.4%.
Finally, consumer prices rose 0.32% in February over the previous month, following January’s flat result . February’s result marked the sharpest increase in prices since August 2023.
Inflation is likely to fall further back towards the midpoint of the Bank’s target range in the coming quarters, which should allow for monetary easing.
On the reading and the monetary policy implications, TD Economics’ Leslie Preston said:
“February’s inflation report was a little bit of good news for Canadians. After stalling through the second half of last year, that is two months of improvement on the Bank of Canada’s key core inflation gauges. However, the battle isn’t won yet, and we now expect the Bank of Canada will leave the overnight rate unchanged until July.”
Desjardins’ Randall Bartlett was more dovish:
“Along with weakness in the Bank’s consumer and business surveys and recent spike in business insolvencies, February’s inflation print helps to reinforce the case for rate cuts to begin in June 2024.”