Quick Take

Higher oil prices support higher inflation in February

The Conference Board of Canada economist Anna Feng offers the following insights on the latest Consumer Price Index (CPI):

Insights:

• The Consumer Price Index edged up 1.1 per cent on a year-over-year basis in February, up slightly from growth of 1.0 per cent in January.
• Recent oil production cuts, coupled with a rebound in global oil demand, have led to a surge in energy prices.
• In February, gasoline prices rose 6.5 per cent (monthly), surpassing their year-ago level for the first time since February 2020. Excluding the impact of gasoline prices, inflation inched up 1.0 per cent in February, down from 1.3 per cent growth in January of this year.  
• Housing prices kept climbing in February, as a result of higher demand for larger homes and low housing supply on the market.
• Record low interest rates led to the largest decline in the mortgage interest cost index in the past decade (down 5.4 per cent), stimulating higher demand for home purchases.
• The homeowner’s replacement cost index—an index that includes new home prices—was up 7.0 per cent from its year-ago level, its highest year-over-year growth since February 2007.
• Canadians continued to withhold their spending on clothing and shoes because of the work-from-home trend. Prices for clothing and footwear were 4.8 per cent lower than February 2020 levels, the largest year-over-year decline since May 2020.
• The price of clothing was the only major component in the CPI basket that remains down from year-ago levels in February.
• Prices for tourism-related services continued to trend lower in February because of muted demand for travel during the pandemic.
• Prices for traveler accommodation (down 18 per cent), air transportation (down 6.7 per cent), and rail transportation (down 6.7 per cent) all declined further in February compared to January of this year.
• The average of the Bank of Canada’s three core inflation measurements held steady at 1.7 per cent in February, remaining 0.3 per cent below the central bank’s 2.0 per cent target.
• Overall, February’s inflation rate was largely pushed up by the rapid rise in gasoline prices and the strong growth in housing prices. However, prices for several categories, including clothing and travel services, remained muted.
• We expect inflation to rebound in the coming months, as consumer prices surpass last year’s trough which hit bottom in April and May 2020, during the peak of pandemic-related closures.