Canada’s annual inflation rate slowed more than expected in February

Statistics Canada says the annual pace of inflation cooled even more than market analysts expected last month.

The Consumer Price Index for February rose 5.2 per cent compared with a year ago.

The result for February is lower than what was forecast by the market and compares with an annual inflation rate of 5.9 per cent in January. It is the lowest annual inflation rate since January 2022.

“The latest reading on the cost of living backs the case for the Bank of Canada to stay on the sidelines for interest rates, for the near future at least,” says CityNews senior business editor Mike Eppel.

The bank had been raising interest rates aggressively in an effort to bring price pressures down.

Canada February inflation sees biggest deceleration since 2020…
-Feb. CPI up 5.2% vs Jan. 5.9%
-Core CPI up 4.8%
-Gas prices drop 4.7%, first y/y decline since Jan 2021
-Grocery Prices up 10.6% (7th month in double digits)https://t.co/lPxT58ubQG

— Mike Eppel (@eppman) March 21, 2023

The underlying contributing factor to the lower result is a drop off in gasoline prices. Energy prices were down 0.6 per cent year over year as gasoline prices fell 4.7 per cent compared with a year ago when prices began to rise due to the Russian invasion of Ukraine.

Despite the overall cooling, grocery prices remained elevated and outpaced overall inflation. Prices for food purchased from stores in February were up 10.6 per cent compared with a year ago, the seventh consecutive month of double-digit increases.

“Not much in the way of savings at the grocery store for consumers,” Eppel says.

“But the bottom line, the core reading of inflation is on the right path. The Bank of Canada next month, likely now going to hold off on moving on interest rates.”

The Bank of Canada, which is working to bring overall inflation back to its target of two per cent, left its key interest rate target unchanged earlier this month at 4.5 per cent.

It was the first time the central bank kept its key policy rate on hold since it began raising it last year in an effort to cool rising prices.

With files from CityNews senior business editor Mike Eppel