Statistics Canada has reported that the country’s inflation rate cooled to 5.2% in February. This is the largest single-month deceleration since April 2020. It fell from 5.9% recorded in January and is at its lowest level in 13 months. It is also lower than many analysts’ prediction of a 5.4% rate.
The fall in inflation has been linked to the substantial monthly rise in prices in February, driven by the Russia-Ukraine conflict. Even with the decline, food and energy prices remain high. Retail store food prices were found to have risen by 10.6% compared to a year ago. This also marks the seventh consecutive month of double-digit increases in food prices.
Fruit juice was found to have risen the highest at 15.7%. This has partly been attributed to a citrus fruit disease plaguing some farmlands and bad weather. Prices on sugar, cereals, fish, seafood, and other marine products continue to rise, while that on meat, vegetables, bakery goods, and non-alcoholic drinks has slowed down.
Energy prices fell by 0.6%, year-over-year. Gasoline dropped by 4.7% compared to the same period last year when Russia invaded Ukraine. Excluding food and energy, prices were found to have risen by 4.8% year-over-year and down from 4.9% in January.
The slowdown in inflation seemingly supports the central bank’s decision to pause interest rate hikes. Earlier this month, the Bank of Canada held its key policy rate steady at 4.5%. This is the first hold since hikes began last year, with a goal of bringing the inflation rate back to its target level of 2%.
According to a summary of the governing council’s deliberations, there was no discussion about increasing the interest rates, but there were concerns raised that inflation would be harder than expected to bring down. The council also concurred that demand was outstripping supply in the economy and that elevated government spending could potentially fuel further demand, ahead of upcoming federal and state budget announcements.
The pace of wage growth was also highlighted as a challenge in bringing down inflation. Bank of Canada is projecting that the annual rate of CPI growth will slow down further to about 3% by mid-year and reach its target of 2% by late 2024. The central bank will be announcing its next interest rate decision on April 12.
Analysts expect a continued hold of the benchmark interest rate at 4.5% at the next announcement. However, should the turmoil in the banking sector, as seen by the collapse of the Silicon Valley Bank and the bailout of Credit Suisse, spread to the country, this may change. For now, Canada is experiencing a faster cooling of its inflation compared to other developed nations like the US and Britain.
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