Canada’s annual inflation rate fell to 1.8% in February, lower than analysts’ expectations of 1.9%. The decline was largely due to a “base year effect” following a price spike last year after the government’s sales tax holiday expired.
Despite the overall decline, food prices continued to be a major burden on Canadian households, rising 5.4% annually. Grocery prices have reportedly jumped 30% in the past five years, driven by weather, supply chain disruptions, and trade tariffs introduced by US President Donald Trump.
The energy sector provided some relief as gasoline prices fell 14.2% in February. The decline was driven by the government’s repeal of the carbon tax, which is expected to continue to weigh on year-on-year inflation data through April.
The Bank of Canada (BoC) is currently holding interest rates at 2.25% as inflation remains within its 1-3% target range. However, the escalating conflict in the Middle East and rising global crude oil prices have raised concerns that this downward trend in inflation may be temporary.
The market is now awaiting the BoC's monetary policy decision due this week for a clearer picture of the economic direction. The Canadian Dollar reacted positively to the latest data, strengthening by 0.28% against the US Dollar.
