February’s consumer price index (CPI) saw a sizeable uptick to 2.6 per cent thanks to the mid-month end of the GST/HST tax break—but this update is just the calm before a broader economic storm.
The increase from 1.9 per cent in January was unsurprising but larger than expected. Core inflation measures also climbed, showing that some inflationary pressures remain.
The CPI is set to increase this month and next even further as the tax break will fully be gone. Data from these months will also reflect the effects of U.S. tariffs on Canadian goods.
This month, the U.S. imposed tariffs on Canadian imports not currently covered under the Canada-United States-Mexico Agreement (CUSMA). The Canadian government retaliated with measures on select U.S. imports. Some of these price increases in imports will be passed along to consumers and show up in the CPI in the coming months.
Expect grocery prices to tick up first following this first wave of trade measures. Other consumer products, including household appliances and cars, will see price increases in the coming months as well.
The cancellation of the consumer carbon pricing by the new prime minister, Mark Carney, most likely won’t lead to a noticeable decrease at the pump since gasoline prices climbed over time with the gradually increasing carbon pricing. With the tax removed, it will take time for gasoline prices to drop.
On a monthly basis, the CPI rose by 1.1 per cent in February, the largest monthly increase in three years. Given that the tax break was in place for the entire month of January and half of February, this shows some underlying price pressures aside from the tax break.
The effect of tariffs on consumer prices will be greater and more broad-based than the tax break or the cancellation of carbon pricing.
Gasoline prices rose by 5.1 per cent in February because of a lower base-year effect. On a monthly basis, gasoline prices rose by 0.6 per cent in February because of higher refining costs.
The cancellation of carbon pricing starting in April will lead gasoline prices to decrease, though the decrease will most likely be small. Carbon pricing resulted in an additional cost of 17 cents per litre at the pump, but the decrease after it ends will be gradual. Other factors such as geopolitical conflicts often have a much larger effect on gasoline prices than carbon pricing.
Restaurant prices declined by 1.4 per cent compared to January’s 5.1 per cent as the tax break ended in mid-February. For March and beyond, expect restaurant prices to stay constant or increase slightly now that the tax break is gone.
Shelter prices rose by 4.2 per cent on a yearly basis, above than the headline number and core inflation but below shelter inflation over the past few years. The slowdown in immigration is easing housing demand and, therefore, housing prices.
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