- February CPI broadly as-expected, +2.2% year-over-year
- Impact of coronavirus on prices in February limited, inflation will slow going forward
In the latest backward looking economic data, Canadian CPI was broadly as-expected in February rising 0.4% month-over-month and 2.2% from a year ago. Those growth rates will clearly soften going forward as the dramatically downward impact of the coronavirus outbreak (and the Saudi-Russia oil price spat) on commodity prices, and what will ultimately be a dramatic fall in demand for a large swath of retail and services products flows through beginning more significantly in March.
Headline CPI could easily test the lows seen over the last five years (sub-1% in 2015). There could well be some additional downward pressure from discounts offered by coronavirus-affected businesses, though a weaker Canadian dollar (a byproduct of lower oil prices and risk aversion in financial markets) will add to the price of imported goods. For the Bank of Canada, all of this means little in the near-term. Lower inflation means the central bank won’t feel conflicted about adding stimulus, but supporting the economy through this shock would have been its top priority anyways.
