Statistics Canada Reports Lower Inflation

According to Statistics Canada, the annual inflation rate fell by the most since the early stages of the pandemic.

The Consumer Price Index (CPI) rose 5.2 per cent in February from a year earlier, slowing from a 5.9-per-cent pace in January, Statistics Canada said. It was the largest drop in CPI since April, 2020.

The recent slowdown in consumer price growth is largely because the initial effects of Russia’s invasion of Ukraine – which led to spiking prices of commodities, such as crude oil and wheat – are no longer part of the year-over-year calculation of inflation. This is known as a base effect.

For that reason, the coming months should bring a further deceleration. The Bank of Canada projects the annual rate of CPI growth will cool to around 3 per cent by the middle of the year, then return to its 2-per-cent target by late 2024.

Excluding food and energy, prices were up 4.8 per cent on an annual basis in February, down just slightly from a 4.9-per-cent gain in January.

The Bank of Canada and other central banks are being tested by inflation that remains too high, but also distress in the financial system, after the collapse of Silicon Valley Bank and the emergency takeover of Credit Suisse.

Unlike many of its peers, the Bank of Canada had already moved to the sidelines, putting a “conditional pause” on further increases to its policy rate, now at 4.5 per cent. Inflation appears to be cooling more rapidly in Canada than in the U.S. and Britain.

Gasoline was a big contributor to slowing inflation. Prices at the pump fell nearly 5 per cent in February from a year earlier – the first annual decline since the outset of 2021. Over all, energy prices fell 0.6 per cent. Electricity dropped by 2.3 per cent over the previous year.

There were other notable areas of decline. Child-care costs fell by 27.5 per cent on an annual basis as the national child-care deal leads to a sharp reduction in fees.

In some places, progress is slow. Grocery prices rose 10.6 per cent on a 12-month basis in February. While that was improved from January’s pace of 11.4 per cent, it was the seventh consecutive month of double-digit increases.

“Continuing to put upward pressure on grocery prices are supply constraints amid unfavourable weather in growing regions, as well as higher input costs such as animal feed, energy and packaging materials,” Statscan said in its report.

The housing sector has been on a rollicking ride. Over all, shelter costs rose 6.1 per cent in January on a 12-month basis – better than 6.6 per cent in January. However, mortgage interest costs surged by nearly 24 per cent, the fastest pace since 1982.

In recent months, economists have looked to short-term trends in inflation for a sense of how things are progressing. Expressed at an annualized rate, the three-month change in core CPI (excluding food and energy) was 3.4 per cent in February, up from 3.1 per cent in January – and just outside the Bank of Canada’s target range of 1 per cent to 3 per cent.

The central bank will make its next rate decision on April 12. Bank officials have said they would only resume hiking interest rates if they see an “accumulation of evidence” that price growth is not easing as expected and economic conditions are overheated.