Canada inflation slows to 1.8% in February before oil shock

Statistics Canada reported annual inflation cooled to 1.8% in February, below consensus, and economists say the softer reading should give the Bank of Canada room to hold interest rates as energy-price risks persist.

Statistics Canada reported that annual inflation in Canada slowed to 1.8% in February, down from 2.3% in January and slightly below economists' consensus of 1.9%. The monthly data show gas prices edging higher amid rising tensions in the Middle East, though the figures cover a period before later developments. Economists said the softer reading should give the Bank of Canada room to keep interest rates on hold at its upcoming decision. The year‑over‑year comparison was also affected by base‑year effects tied to prior tax changes. Key details: - Annual consumer price inflation slowed to 1.8% in February versus 2.3% in January and a consensus forecast of 1.9%. - Core inflation measures moderated: CPI-median and CPI-trim each fell to 2.3%, while CPI excluding food and energy was 2.0%. - On a three-month annualized basis, BoC-preferred core measures averaged about 1.0%, as noted by BMO's analysis. - Economists broadly expect the Bank of Canada to hold policy interest rates at its scheduled announcement this week. - Statistics Canada cited base-year effects, including impacts on restaurant food, as a factor in the weaker year-over-year reading. Summary: The February inflation print reduces immediate upward pressure on monetary policy and leaves the Bank of Canada widely expected to keep interest rates unchanged at its Wednesday decision. The outlook includes the risk that further increases in energy prices related to Middle East tensions could influence inflation readings going forward.