What could the new figures mean for interest rates?
Canada’s inflation rate dipped to 2.8% in February, marking the second month in a row the consumer price index (CPI) has fallen within the Bank of Canada’s target range and defying expectations of an uptick.
New figures released by Statistics Canada on Tuesday showed the annual pace of price growth fell by 0.1% compared with January in good news for the central bank as it weighs up when to begin cutting interest rates this year.
Analysts surveyed by Bloomberg prior to the release had expected inflation to jump to 3.1% in February.
Mortgage interest costs remained by far the biggest contributor to the 12-month change in the CPI, rocketing by 26.3% compared with the same time last year. That continues a trend that emerged as the Bank of Canada started to hike interest rates after a prolonged period of rock-bottom borrowing costs during the COVID-19 pandemic.
Rent costs also continued to surge, increasing by 8.2% nationally over February 2023, with electricity, food purchased from restaurants, and passenger vehicle insurance premiums other heavy contributors to the overall inflation figure.
Gasoline prices increased by 0.8% in February after falling by 4.0% in January – but excluding that measure, headline CPI slowed to 2.9% last month compared with 3.2% in January.
The better-than-expected February inflation figure suggests that interest rates could soon be set to fall from their current 22-year high.
The central bank has remained steadfast in its view that inflation needs to show clear signs of progress towards its 2% target before rate cuts become a reality – and the CPI has continued to tick resolutely downwards from the summer of 2022, when it soared to its highest level for nearly four decades.
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