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(Bloomberg) — Canada’s inflation rate slowed by more than expected last month after a sales tax break rolled out of yearly comparisons.
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Headline inflation fell to 1.8% in February from 2.3% in January, Statistics Canada reported on Monday. That’s lower than the 1.9% expected by economists surveyed by Bloomberg.
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A temporary sales tax break introduced by former prime minister Justin Trudeau on a range of goods, including restaurant meals and children’s toys, expired in the middle of February last year.
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While the tax holiday initially drove yearly headline inflation higher because of base effects, it’s now reversing and causing a deceleration that will likely affect March inflation data as well.
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Prices for food bought from stores rose at a slower annual rate of 4.1% in February, compared to 4.8% during the previous month. The deceleration was led by weaker price growth for frozen or fresh beef.
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Grocery prices, which have been a major pain point for Canadian consumers, have risen by a cumulative 30.1% over the past five years.
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Offsetting some of the strain from rapidly rising grocery prices is a moderation in shelter prices, which continued to decelerate last month, rising 1.5% on an annual basis, the slowest pace in five years.
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Meanwhile, a more modest year-over-year deceleration in gasoline prices last month moderated the slowdown in headline inflation, with prices at the pump down 14.2% compared to 16.7% in January.
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Gasoline prices were up 3.6% on a monthly basis, with that increase largely driven by an increase in oil prices ahead of the Middle East conflict as well as oil supply disruptions in some producer countries, Statcan said.
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Core measures of inflation also eased by more than expected in February. The consumer price index excluding food and energy was up 2%, while the central bank’s median and trim measures of inflation both fell to 2.3%.
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The Bank of Canada is widely expected to hold its key interest rate at 2.25% at its meeting on Wednesday. However, how inflation evolves in the coming months as the Middle East conflict drives up oil prices will heavily influence the future path of interest rates.
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The central bank will have to weigh those inflationary risks against other economic data, which suggests the trade with the US continues to drag down growth in Canada.
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—With assistance from Mario Baker Ramirez.
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English (US)