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Economic News

Canada: Inflation Agrees to be the BoC’s Valentine in February

March 19, 2024
Randall Bartlett
Senior Director of Canadian Economics


  • Headline CPI rose 2.8% y/y over February of last year, coming in well below the consensus forecast of economists (3.1%) for the second consecutive month. Meanwhile, monthly prices rose 0.1% m/m on a seasonally-adjusted basis, reversing January’s drop. Table 1 summarizes the key data points. 


2024 just keeps coming up Canada on the inflation front, with February posting the second consecutive downside surprise. At 2.8% y/y, inflation seems to be settling comfortably into the Bank of Canada’s 1% to 3% target range for inflation.

Unpacking the headline move, there was a lot to like in the February release. Food price growth (2.4%) continued to ease. And while posting a positive print on a year-over-year basis, the contribution from gasoline to February inflation was modest. As a result, the rise in total CPI excluding food and energy broadly matched the 2.8% increase in headline. Canadians also continued to pay less for cellular (-26.4%) and childcare (-2.8%) services in the month. However, it wasn’t all good news. Shelter prices accelerated on a year-over-year basis in February (graph 1), boosted by both rented (7.9%) and owned (6.9%) accommodation, the latter still largely being driven by mortgage interest cost (26.3%).

Digging deeper into the data, the Bank of Canada’s preferred measures of core inflation—CPI median and trimmed mean—decelerated again in February but remained above 3%. But on a 3-month annualized basis, these measures slowed on average by 0.9 percentage points to reach 2.1% and 2.4%, respectively (graph 2). However, as recent research External link. from our Macro Strategy team found, “the problem is that those measures have become biased, likely overestimating the true underlying inflation rate.” Instead looking to the more universally referenced total CPI inflation excluding food and energy, inflation on a 3-month annualized basis slowed sharply to 1.3% in February. And in a blast from the past, CPIX (CPI excluding the 8 most volatile components & indirect taxes)—the Bank’s former preferred measure of core inflation—was flat when calculated the same way, for the second consecutive month under 2%.

At 2.8% y/y, headline inflation in the first two months of 2024 is coming in well below the Bank’s forecast of 3.2% for Q1 in the January 2024 Monetary Policy Report. Along with weakness in the Bank’s consumer and business surveys and recent spike in business insolvencies, February’s inflation print helps to reinforce the case for rate cuts to begin in June 2024. The Bank will likely signal a change in policy at its upcoming April meeting.

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.