Canada’s inflation figures came in softer than expected for a second consecutive month, suggesting to economists that the Bank of Canada will have ample grounds to begin cut interest rates in the coming months.
Statistics Canada released its consumer price index report Tuesday, which shows the annual inflation rate fell to 2.8 per cent amid sharp declines in cellular and internet services, as well as slower grocery price growth.
Economists were widely expecting Canada’s inflation rate to have risen above January’s 2.9 per cent, in part due to higher gasoline prices.
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“This is an unambiguously good report from the Bank of Canada’s perspective. It essentially shows that high interest rates are working to tame inflation, which is what they’re looking for to start cutting interest rates,” said Katherine Judge, a director at senior economist and CIBC Capital Markets, in an interview.
The federal agency says prices for wireless services were down 26.5 per cent and internet prices fell 13.2 per cent from a year ago.
Prices for food purchased at stores in February were up 2.4 per cent from a year ago, marking the first time prices grocery prices rose more slowly than overall inflation since October 2021.
However, that’s little relief to Canadians who continue to pay significantly higher prices for food than they did a few years ago. The federal agency says grocery prices increased 21.6 per cent between February 2021 and February 2024.
Meanwhile, housing costs continue to put upward pressure on inflation, with mortgage interest costs up 26.3 per cent and rent up 8.2 per cent annually.
Still, the report Tuesday is encouraging for the Bank of Canada, which is looking for more evidence that inflation is sustainably headed back to the country’s two per cent target before it moves to lower interest rates.
February marks the second straight month that inflation fell within the Bank of Canada’s one to three per cent target range.
The central bank’s preferred core measures of inflation, which strip out volatility in prices, also fell last month.
“The core measures are the ones that are really important from the Bank of Canada’s perspective, because they exclude things that aren’t a good signal of underlying demand,” Judge said.
“What makes it such an unambiguously good report is the fact that the weakness wasn’t in these volatile, supply-driven headline items. They were actually beneath the surface.”
Judge said the “last piece of the puzzle” for the central bank will be seeing more softness in the labour market and the economy overall.
Economists continue to widely expect the Bank of Canada to begin cutting its key interest rate in June or July.
“Overall, we continue to expect a persistently soft economic backdrop to further slow inflation readings in Canada in the months ahead, allowing for the BoC to start lowering interest rates around mid-year,” wrote Claire Fan, an RBC economist.
The central bank’s next interest rate announcement is scheduled for April 10.
Here’s what happened in the provinces (previous month in brackets):
— Newfoundland and Labrador: 2.0 per cent (2.5)
— Prince Edward Island: 1.5 per cent (1.6)
— Nova Scotia: 2.8 per cent (3.0)
— New Brunswick: 2.1 per cent (2.3)
— Quebec: 3.3 per cent (3.3)
— Ontario: 2.4 per cent (2.7)
— Manitoba: 0.9 per cent (0.8)
— Saskatchewan: 1.7 per cent (1.9)
— Alberta: 4.2 per cent (3.4)
— British Columbia: 2.6 per cent (3.0)
The agency also released rates for major cities, but cautioned that figures may have fluctuated widely because they are based on small statistical samples (previous month in brackets):
— St. John’s, N.L.: 2.5 per cent (2.8)
— Charlottetown-Summerside: 1.3 per cent (1.5)
— Halifax: 3.4 per cent (3.5)
— Saint John, N.B.: 2.3 per cent (2.4)
— Quebec City: 3.3 per cent (3.4)
— Montreal: 3.4 per cent (3.5)
— Ottawa: 1.8 per cent (2.0)
— Toronto: 3.0 per cent (3.3)
— Thunder Bay, Ont.: 2.2 per cent (2.1)
— Winnipeg: 1.0 per cent (1.0)
— Regina: 2.0 per cent (2.4)
— Saskatoon: 2.1 per cent (2.3)
— Edmonton: 4.2 per cent (3.0)
— Calgary: 5.1 per cent (4.1)
— Vancouver: 2.9 per cent (3.3)
— Victoria: 2.5 per cent (2.8)
— Whitehorse: 2.5 per cent (2.6)
— Yellowknife: 1.7 per cent (2.8)
— Iqaluit: 3.1 per cent (3.0)
