MNI: Canada CPI Slows More Than Expected For Second Month
Canada's headline inflation rate came in slower than economists predicted and core prices slowed for a second month in February, the kind of sustained progress that central bank policymakers say is needed to lower the highest interest rates in decades.
Consumer price gains slowed to 2.8% from a year earlier from January's 2.9% pace, Statistics Canada said Tuesday from Ottawa, bucking the economist consensus for an acceleration to 3.1%. Core measures tracked by the Bank of Canada also decelerated with the "median" index down to 3.1% from 3.3% and "trim" to 3.2% from 3.4%.
It's the first time since February and March 2021 that headline inflation has been within the Bank's 1%-3% target band, and back then inflation was surging ahead as global commodity prices jumped and Covid lockdowns subsided. Governor Tiff Macklem recently told MNI he can be nimble if needed but there needs to be broad and sustained slowing of price pressures before he can seriously consider an interest-rate cut.
Reduced cell phone rates and a 1.4% decline in the cost of home upkeep helped pull down inflation, StatsCan said. Perhaps more significant for potentially dangerous price expectations with inflation being above the Bank's target for three years now, grocery price gains lagged headline inflation in February for the first time since October 2021. StatsCan said that food price relief was driven by a so-called base effect.
Gasoline prices also went the other way in February, rising 0.8% versus a prior decline of 4%. Mortgage interest rates also rose 26% and rents by 8.2%, both near historical highs.
The tone of the report is still a welcome shift after several years of stubborn headline and core inflation, though experts have told MNI that core prices probably need to slip clearly below 3% before the BOC will cut rates. The Bank predicts inflation will remain close to 3% during the first half of this year before gradually easing to 2% in 2025. Macklem has said he doesn’t have to wait until inflation is all the way back to 2% before he cuts interest rates.
Many see the Bank cutting rates around the middle of this year, forecasts that had been pushed back in recent weeks amid signs the economy was still defying bets on a recession.