The annual pace of inflation in Canada ticked lower in February as higher prices for gasoline were offset in part by declining costs for fresh fruit and vegetables.
Statistics Canada said Friday the consumer price index rose 2.0 per cent on a year-over-year basis in February. The move compared with a 2.1 per cent increase in January. Economists had expected it to rise 2.1 per cent in February as well.
In Ottawa, the inflation rate was two per cent, up from 1.9 per cent in January.
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The inflation report follows several recent economic data points that have been stronger than expected including retail, wholesale and manufacturing sales, trade and job creation.
Bank of Montreal chief economist Doug Porter said the relative stability in headline inflation and mild readings for core inflation provide a dovish counterpoint to the recent upbeat economic indicators for the Bank of Canada.
“It is important to point out that in much of the rest of the world inflation is actually marching higher quite quickly,” Porter said.
“But here in Canada it’s quite stable, it’s been holding roughly around two per cent for a few months now and it doesn’t look like it is going to make a meaningful breakaway from something close to two per cent in the coming months.”
The Bank of Canada is widely expected by economists to keep its key interest rate target on hold until some time next year. It has been set at 0.5 per cent since July 2015.
The position stands in contrast to the United States where the Federal Reserve raised its benchmark interest rate last week and forecast two additional hikes this year.
In a speech earlier this week, Bank of Canada deputy governor Lawrence Schembri said the economy has made good progress since the plunge in oil prices in 2014, but slack remains and overall business investment continues to be weak. The bank closely tracks whether the economy is approaching full capacity as this can fuel inflation.
Royal Bank economist Josh Nye said the inflation report fits with the Bank of Canada’s narrative on slack in the Canadian economy.
“Given heightened uncertainty regarding U.S. policy, we doubt their neutral tone will change much at April’s meeting despite the solid run of data we’ve seen in recent months,” Nye said.
Statistics Canada said prices were higher in seven of the eight major components, with food the only one to decline.
Excluding gasoline, the February consumer price index was up 1.3 per cent compared with a year ago following a 1.5 per cent increase in January.
Transportation costs gained 6.6 per cent compared with a year ago, boosted by a 23.1 per cent rise in gasoline – which was at an unusually low level in early 2016. Shelter costs rose 2.2 per cent.
Food costs fell 2.3 per cent as prices for food bought from stores fell 4.1 per cent. Prices for food bought from restaurants rose 2.3 per cent but fresh vegetables dropped 14.0 per cent and fresh fruit slipped 13.3 per cent, partly reflecting a spike in prices last winter.
The annual pace of inflation slowed in seven provinces on a year-over-year basis in February while Ontario and B.C. both held steady at 2.3 per cent. Manitoba was the only province to show an increase in the annual pace of inflation as it increased to 2.3 per cent compared with 2.1 per cent in January.
Statistics Canada said the Bank of Canada’s three preferred measures for core inflation saw year-over-year increases last month of 1.3 per cent, 1.9 per cent and 1.6 per cent.
