Canadian consumer prices rose 2.0 % (year-on-year) in February, decelerating from 2.1% in January. Prices were up 0.2% month-on-month (on par with consensus). On a seasonally adjusted basis, prices fell an estimated 0.2% month-on-month.
Once again energy was the main source of price pressures. Despite a 0.8% decline on a month-on-month basis, relative to a year ago, transportation costs were up 6.6% on the month, up from 6.3% in January.
Partially offsetting higher energy prices, food prices continue to decline. Food prices were down 2.3% year-on-year in February (from 2.1% previously), mainly due to falling prices for fresh vegetables, which were down 14%.
Core inflation measures remained benign: CPI-common and CPI-median were both unchanged at 1.3% and 1.9% respectively, while CPI-trim edged down to 1.6% (from 1.7% previously). All core measures are year-on-year.
Key Implications
Not much to report here in terms of inflation in Canada. Headline inflation looks likely to remain close to 2.0% over the next several months, and with energy prices relatively stable, is likely to decelerate modestly through the second half of this year.
Market expectations for rate hikes from the Bank of Canada have moved up in recent months, following rate hikes in the United States. However, with soft inflation and messaging from Bank of Canada officials that the Canadian economy remains in excess supply, investors may be over pricing the chance of a rate hike. Consistent with gradual absorption of economic slack, we do not expect the central bank to step off the sidelines until well into 2018.
