Canada’s consumer price index fell to 2.8% February, marking the second consecutive month of decline and bolstering the case for the Bank of Canada to cut rates.
The decline wasn’t limited to just the headline number. Core measures of inflation eased as well: Trimmed CPI, which excludes extreme price movements, fell to 3.2%, and median CPI, which measures the 50th percentile of price changes, declined to 3.1%, according to data released by Statistics Canada on Tuesday.
Disinflation is spreading across most categories. Excluding shelter, inflation fell to a stunning 1.3%, significantly below the central bank’s 2% target. Excluding mortgage interest payments, the number is 1.9%.
The easing inflation figures suggest that Bank of Canada, in its April statement, will signal rate cuts starting in June.
Groceries inflation fell to 2.4%, below the headline number for the first time since 2021. Inside grocery stores, prices are rising more slowly. Deals and discounts are becoming more common once again.
Still, consumers are dealing with the sting of surging prices in recent years. The prices of groceries, for example, have climbed 21.6% over the past three years. But the pace of increase has decelerated. And that makes a positive and visible difference for consumers.
Read more of RSM Canada’s insights on the economy and the middle market.
Gasoline prices increased by 0.8% on a year-over-year basis and by 4% on a month-over-month basis because of higher global prices for crude oil. But because oil prices are volatile, it’s helpful to look beyond gasoline and at underlying price pressures. All indicators point to a widespread deceleration of underlying price pressures as tighter monetary policies take hold.
Shelter is perhaps the biggest sticking point in the effort to tame inflation. Shelter inflation reached 6.5%, with hardly any progress. Rents went up by 9% in February, and mortgage interest payments will continue rising even after the Bank of Canada begins to cut rates.
The takeaway
The fight against inflation is long and bumpy, but progress is real. As long as core inflation measures continue to make progress, Canada will soon see the rate cut cycle begin, and with that, an economic recovery.
