Inflation dropped to 2.8% in February amid relief at grocery store – National

The annual rate of inflation ticked down in February amid relief at the grocery store, Statistics Canada said Tuesday.

Overall inflation was 2.8 per cent year-over-year in February, down from 2.9 per cent in January, the agency said. The easing surprised most economists, who had expected an uptick in inflation for the month.

Prices at the grocery store were one of the biggest contributors to the step down, rising 2.4 per cent in February, down from 3.4 per cent in the previous month. This marks the first month since October 2021 that grocery inflation came in below the overall inflation rate, StatCan noted.

The cooling inflation was “broad-based” across aisles at the grocery store, according to the agency. Prices for fresh fruit, processed meat and fish declined year-over-year in February, while other components including bakery and dairy products saw prices grow but at a slower pace than January.

StatCan also noted however that last month’s food inflation figures were helped by base-year comparisons to February 2023, when supply constraints and inclement weather drove prices sharply higher.

Cheaper wireless services also contributed to the decline in overall inflation, StatCan said, as providers were offering cheaper phone and internet plans.

Housing costs meanwhile continue to put pressure on household budgets. Shelter prices rose 6.5 per cent year-over-year last month, up from 6.2 per cent in January.

Prices for gasoline were 0.8 per cent higher year-over-year in February, StatCan said. Canadians were also paying more for travel tours year-over-year.

The Bank of Canada is watching for signs that inflation will cool all the way back down to its two per cent target before it considers cutting its benchmark interest rate.

The central bank’s preferred core measures of inflation, which strip out the more volatile components of the consumer price index like gas, also ticked down in February but remain just above three per cent.

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The February report is the final inflation print the Bank of Canada will get before its next rate decision on April 10.

Many economists weighing in on the surprisingly soft inflation figures on Tuesday said that the easing in price pressures likely isn’t enough to warrant an interest rate cut in April.

But CIBC senior economist Katherine Judge said in a note to clients on Tuesday that the February figures were “unambiguously good news” and are “clearly encouraging” for the Bank of Canada. She said the central bank will look for more loosening in the labour market before “pulling the trigger” on an interest rate cut in June.

“This is the second month in a row in which inflation has looked softer than expected, and with ample evidence that higher interest rates are working to tame inflation, the Bank of Canada is on track to start cutting interest rates in June,” she said.

BMO chief economist Doug Porter said in a note that an April rate cut is in the cards if the Bank of Canada’s upcoming business outlook surveys show signs of more progress.

But he said the April central bank decision should see policymakers “open the door” to rate cuts, with easing actually beginning in June.

More to come.

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