Canada’s inflation rate surged to 2.6% in February, up from 1.9% in January, as the federal tax holiday came to an end. The Goods and Services Tax (GST) and Harmonized Sales Tax (HST) break, which had been in effect from December 14 to February 15, ended mid-month, contributing to the rise in prices for certain consumer goods, according to Statistics Canada.
The removal of the tax break resulted in less significant declines in the prices of restaurant food and alcoholic beverages compared to January, where they had seen sharper drops. Gasoline prices saw a 5.1% year-over-year increase in February, after an 8.6% rise in January, with a 0.6% rise from January to February.
Despite the inflation increase, economists noted that the Bank of Canada could opt to pause its interest rate cuts in the upcoming April meeting. The central bank’s policy rate currently stands at 2.75%, following seven consecutive cuts. Benjamin Reitzes, economist at Bank of Montreal, noted that while the inflation data is above the Bank’s target of 2%, the impact of tariffs, which were imposed in March, is yet to be reflected in the February figures.
Core Inflation on the Rise
Core inflation, which is the Bank of Canada’s preferred measure, also saw an uptick. The Consumer Price Index (CPI)-common rose 2.5% year-over-year in February, up from 2.2% in January. CPI-median and CPI-trim both saw increases of 2.9%, compared to 2.7% the previous month. These figures indicate persistent inflationary pressures, complicating the central bank’s policy decisions.
David Rosenberg, founder of Rosenberg Research, pointed out that the Bank of Canada now has a “green light” to consider skipping some policy meetings, particularly with the U.S. Federal Reserve on hold and Canada’s policy rate lower than the U.S. rate by 150 basis points.
Potential Impact of Tariffs
The Bank of Canada remains focused on the ongoing trade uncertainty with the U.S., especially with the looming possibility of additional tariffs. Katherine Judge, economist at the Canadian Imperial Bank of Commerce, noted that the Bank’s decision in April would largely depend on the tariff situation, as U.S. President Donald Trump is set to impose reciprocal duties on April 2.
Economists will be closely watching how inflationary trends evolve in light of these developments, as the Bank of Canada navigates the challenges of managing inflation and economic stability.
Related topics:
Why We Celebrate St. Patrick’s Day: Understanding the Holiday’s Deeper Meaning
St. Patrick’s Day 2025: A Look at Its History and Traditions