- The year-over-year rate of headline CPI inflation edged down to 2.0% from 2.1% in January. The reading fell slightly short of market expectations for an unchanged 2.1% rate but inflation continues to track above the Bank’s Q1/17 forecast of 1.8%.
- The rate of energy price inflation was little changed at 12% as the drop in energy prices in February (including gasoline -5%) was similar to the dip seen a year ago.
- Food prices were 2.3% lower than a year ago when exchange-rate-driven increases in some food prices were most intense. This continues the most significant period of food price deflation in more than two decades, though base effects should see the pace of decline softening going forward.
- Excluding food and energy, consumer prices were up 2.0% year-over-year after January’s rate (2.2%) was the fastest since 2007.
- The Bank of Canada’s three new core measures averaged 1.6% in February for a fourth consecutive month (after rounding). CPI-Common, remaining at its lowest level in two decades (1.3%), is somewhat out of sync with the other two measures which are closer to their longer-run averages.
Our Take:
After an upside surprise on inflation in January, today’s report was a bit more ho-hum as the annual rates of headline inflation and major components (food, energy, and core) were all little changed in February. All items CPI is tracking above the Bank of Canada’s latest forecast but that largely reflects transitory factors (namely energy prices) that the Bank said they were "looking through" in March’s policy statement. Meanwhile, their new core measures, all of which remained below 2%, will likely continue to be cited as evidence of excess capacity in the economy. There has been some evidence of firming in other core measures – ex food and energy inflation is running at 2% and prices for services ex shelter, a gauge of domestic price pressure, have picked up in the last two months. That said, today’s report fits with the Bank’s narrative on slack in the economy, and given heightened uncertainty regarding US policy, we doubt their neutral tone will change much at April’s meeting despite the solid run of data we’ve seen in recent months.
