Pace of Price Growth Continued To Fall in February

  • In February, the Consumer Price Index (CPI) rose by 2.8 per cent (y/y). This was lower than January’s 2.9 per cent (y/y) increase.
  • Gasoline prices rose by 4.0 per cent (m/m) and were 0.8 per cent higher than a year ago. Year-over-year, food prices increased in stores (+2.4 per cent) and restaurants (+5.1 per cent).
  • Core CPI (excluding food and energy) grew by 2.8 per cent in February (y/y), which was lower than the 3.1 per cent increase (y/y) in January. Several shelter components were key contributors to overall CPI growth.
  • On a seasonally adjusted monthly basis, the CPI rose by 0.1 per cent in February (following a 0.1 per cent decline in January).
  • The average of the Bank of Canada’s three core inflation measures fell to 3.1 per cent in February from 3.3 per cent in January. CPI-common fell to 3.1 per cent, CPI-median dropped to 3.1 per cent, and CPI-trim decelerated to 3.2 per cent.

Key Insights

Headline inflation fell again in February, remaining within the Bank of Canada’s target range. Gasoline prices were up, both year-over-year and month-over-month. Fuel price fluctuations will continue to add some drama to the ongoing inflation saga. The core story, however, remains much the same. Core inflation measures, which will be pored over by the Bank of Canada, declined for the second consecutive month in February. The Bank is looking for a “sustained” downward trend and, while two months is encouraging, we may not be there yet.

Though we anticipate rate cuts this year, the persistence of elevated price growth for services is the elephant in the inflationary room. Service prices grew by 4.2 per cent in February, whereas goods prices rose by only 1.2 per cent (y/y). Shelter cost dynamics are the primary motive force behind this stubbornness. Mortgage interest cost growth is cooling slightly, though its 26.3 per cent gain (y/y) in February will bring little comfort to concerned consumers. Rent price growth also accelerated again, rising by 8.2 per cent over the same time last year. Shelter represents nearly 30 per cent of the consumer basket in Canada. As the year unfolds, we will see how willing the Bank of Canada is to look through shelter price dynamics when determining when to trim interest rates.

Even as inflation falls, consumers expect it to remain high – and that remains a sticking point for the Bank of Canada. While the Bank’s last published reading of inflation expectations is based on surveys conducted late last year, that data showed that consumers’ expectations for the pace of price growth one year from now remained stubbornly high. Great expectations for future price growth can spur strong demands for higher wages. The pace of wage gains already remains elevated, hovering around 5.0 per cent (y/y). Fortunately, labour productivity picked up in the fourth quarter of 2023 following five quarters of decline. This movement in the right direction could help to make wage pressures less inflationary. But productivity remains lower than at the end of 2019. If elevated wage growth persists, the Bank will move more cautiously.

For more details about our inflation forecast and inflation’s impact on the Canadian economy, please consult our Canadian Five-Year Outlook.