Annual Inflation Cools to 1.8% in February: Statistics Canada

Why It Matters

The softer CPI reading eases immediate pressure on monetary policy, but volatile energy markets could quickly reverse the trend and test the central bank’s inflation target.

Key Takeaways

• CPI rose 1.8% YoY in February, down from 2.3%.
• GST/HST break ending lifted restaurant prices.
• Gasoline fell 14.2% YoY, rose 9.6% MoM BC.
• Core inflation near 2% target, easing labor slack.
• Bank of Canada likely to hold rates this week.

Pulse Analysis

The February CPI report shows Canada’s inflation cooling to 1.8% year‑over‑year, the lowest pace since early 2024. The primary catalyst was the phasing out of a temporary GST/HST rebate, which caused a modest uptick in restaurant prices while broader price pressures eased. Energy components, notably gasoline, posted a 14.2% annual decline, though regional spikes—such as a 9.6% month‑over‑month rise in British Columbia—highlight lingering supply constraints. Food‑away‑from‑home inflation remained elevated at 7.8%, underscoring the uneven nature of the slowdown.

For policymakers, the data offers a brief reprieve. Core inflation, stripped of volatile energy and tax effects, hovers near the Bank of Canada’s 2% target, reflecting lingering labour market slack and modest wage growth. Consequently, the central bank is widely expected to keep its policy rate unchanged at the upcoming decision, using the pause to assess the durability of the price deceleration. Market participants are watching the BoC’s forward guidance closely, as any hint of tightening could shift bond yields and the Canadian dollar.

Looking ahead, analysts warn that the headline inflation trajectory remains vulnerable to external shocks, particularly the recent escalation in global oil prices linked to geopolitical tensions in the Middle East. A sustained oil price surge could push headline inflation back toward the 3% range, even as core measures stay anchored. Investors and businesses should therefore monitor energy market developments and the BoC’s response, as these factors will shape borrowing costs, consumer spending, and overall economic momentum in the next quarter.