- The Canadian Consumer Price Index (CPI) rose 1.1% year-on-year (y/y) in February, up from 1.0% in January. The rise in inflation was entirely a matter of higher gasoline prices, which moved into positive territory and were up 5% year-on-year in February (up from -3.3% y/y in January). Excluding gasoline, inflation would have decelerated to 1.0% (from 1.3% in January).
- Seasonally adjusted, the index was up 0.1% month-on-month, slowing from 0.4% in January. Price growth was led by transportation prices (including gasoline), which rose 0.9%. Food and shelter prices were both up 0.3% on the month. Several categories saw prices pull back in February, including recreation, education and reading (-2.3%), household operations, furnishings and equipment (-0.6%), and clothing and footwear (-0.4%).
- The Bank of Canada’s core inflation measures were all unchanged in February. CPI-common was just 1.3%, CPI-trim 1.9%, and CPI-median at 2.0%.
Key Implications
- Higher prices at the gas pumps were the driver in February and will continue to push inflation higher over the next several months. Gasoline prices have continued to rise through March, and are likely to push the year-on-year headline CPI metric to 2.5% next month.
- Core inflation is likely to remain more muted, but should pick up steam as the pandemic moves into the rear-view mirror. There is some question about the Bank of Canada’s core inflation measures given Statistics Canada’s methodological changes that lowered the measures but were subsequently reversed. The CPI-common measure, which was not revised, continues to print well below the others and suggests a benign inflationary environment.
- The Bank of Canada will look past the near-term rise in headline inflation, driven as it is by volatile energy prices and the comparison to the lockdowns in the spring of last year. However, it will be upgrading its economic outlook at its next meeting and has made noises about the frothiness in the housing market as an area of a concern. That may not result in a change in monetary policy, but it bares watching, as it is a consequence of it.
