Quick take

February’s CPI figure hits it out of the park

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  • In February, the Consumer Price Index (CPI) rose by 5.7 per cent (y/y) – the largest gain since August 1991.
  • Gasoline prices rose by 6.9 per cent (m/m) and were 32.3 per cent higher than a year ago. Year-over-year food prices also increased, both in stores (+7.4 per cent) and restaurants (+4.7 per cent).
  • Excluding food and energy, the CPI climbed by 3.9 per cent in February. Year-over-year and month-over-month prices were higher in all eight major CPI components. Rising prices in many shelter and transportation subcategories remain key contributors to overall CPI growth.
  • On a seasonally adjusted monthly basis, the CPI went up 0.6 per cent in February, matching the increase of 0.6 per cent in January.
  • The average of the Bank of Canada’s three core inflation measures bumped up to 3.5 per cent in February from 3.3 per cent in January. CPI-trim increased to 4.3 per cent, CPI-median grew to 3.5 per cent, and CPI-common moved up to 2.6 per cent.

Key insights:

  • When filling up your gas tank is already an emotionally fraught experience, February’s CPI figure will likely add fuel to Canadian anxieties over their purchasing power. Inflation is top-of-mind for many Canadians and households report that they are changing their spending habits (buying less meat and opting for cheaper brands, for example) in the wake of rising prices. Scheduled dairy price increases added to food bills in February.
  • Food and transportation prices will be among the biggest contributors to CPI growth this year. These CPI categories were already set to expand but disruptions to supplies of agricultural commodities and oil and gas stemming from the Russian invasion of Ukraine will ensure that price growth hits even higher. Oil prices are elevated but remain volatile and have dropped in recent days. Recovering demand for many recreational services will also add pressure to prices, but higher gasoline prices may pinch some discretionary spending if fuel expenses threaten to burn through travel budgets.
  • The Bank of Canada has started to increase interest rates which should begin to take some steam out of the inflation boiler. However, the upward path that rates are set to follow may have become more winding and uncertain in the face of global events. Higher interest rates also won’t do much to change global commodity prices or mend supply chains. The big question remains whether higher prices at the pump, in the aisle, and everywhere else will be enough to significantly rattle inflation expectations. Higher expectations may lead to more vocal wage demands as Canadian workers struggle to keep their budgets balanced.

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Kiefer Van Mulligen

Kiefer Van Mulligen

Economist

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