The consumer price index increased at an annual pace of 2.6 per cent, up from 1.9 per cent the month before, Statistics Canada said Tuesday. That was well ahead of Bay Street expectations for 2.2 per cent inflation. The index jumped 1.1 per cent on a monthly basis.
The upside surprise comes less than a week after the Bank of Canada cut its policy rate for the seventh consecutive time, to 2.75 per cent. Financial markets trimmed their bets on another cut at the next rate announcement in April, putting the odds at about one-in-three, following the data release.
The jump in prices coincided with the end of the GST and HST holiday on a range of goods, including children’s toys, restaurant meals and alcoholic beverages, in the middle of last month. The temporary tax cut had lowered the rate of inflation through late 2024 and early 2025, as taxes are included in the inflation calculation.
Price pressures, however, are building beyond the goods that were subject to the tax break. The Bank of Canada’s two preferred measures of core inflation both jumped to 2.9 per cent from 2.7 per cent the month before. That means core inflation is running well above the central bank’s 2-per-cent target and only a tick below the upper end of its control band.
There will likely be more inflation ahead. Statscan data has not begun to capture the impact of the trade war between the United States and Canada. But the Bank of Canada has said that retaliatory tariffs against U.S. goods, alongside a depreciation of the dollar and supply chain disruptions, will increase consumer prices in Canada in the coming months.
The consumer price index increased at an annual pace of 2.6 per cent, up from 1.9 per cent the month before, Statistics Canada said Tuesday. That was well ahead of Bay Street expectations for 2.2 per cent inflation. The index jumped 1.1 per cent on a monthly basis.
The upside surprise comes less than a week after the Bank of Canada cut its policy rate for the seventh consecutive time, to 2.75 per cent. Financial markets trimmed their bets on another cut at the next rate announcement in April, putting the odds at about one-in-three, following the data release.
The jump in prices coincided with the end of the GST and HST holiday on a range of goods, including children’s toys, restaurant meals and alcoholic beverages, in the middle of last month. The temporary tax cut had lowered the rate of inflation through late 2024 and early 2025, as taxes are included in the inflation calculation.
Price pressures, however, are building beyond the goods that were subject to the tax break. The Bank of Canada’s two preferred measures of core inflation both jumped to 2.9 per cent from 2.7 per cent the month before. That means core inflation is running well above the central bank’s 2-per-cent target and only a tick below the upper end of its control band.
There will likely be more inflation ahead. Statscan data has not begun to capture the impact of the trade war between the United States and Canada. But the Bank of Canada has said that retaliatory tariffs against U.S. goods, alongside a depreciation of the dollar and supply chain disruptions, will increase consumer prices in Canada in the coming months.
There was also a 23.2 per cent monthly jump in travel tour prices, which Statscan said “reflected increased demand in the United States during the President’s Day weekend.”
Prices at the gas pump also increased, but less quickly than the month before. On an annual basis, gasoline prices were up 5.1 per cent last month, compared to an 8.6 per cent rise in January. Month-to-month, gas prices were up 0.6 per cent.
“This increase was largely related to higher refining costs amid planned refinery maintenance across North America. This offset lower crude oil prices, which were largely a result of increased American supply and tariff threats, which contributed to concerns of slowing global growth,” Statscan said.
Mortgage interest costs were up 9 per cent year-over-year while rent was up 5.4 per cent. However, the monthly gains were relatively small and the yearly pace of shelter inflation was the slowest since 2021.
Benjamin Reitzes, managing director of Canadian rates at Bank of Montreal, said in a note to clients that inflation data are “subject to as much noise as we’ve seen in decades” given the end of the GST holiday and uncertainty over tariffs. New Prime Minister Mark Carney also announced last week that the consumer carbon price would be removed April 1, which will impact energy price inflation.
“There’s plenty of noise still to come on inflation, complicating policymakers’ job,” Mr. Reitzes wrote. “We’ll see what early April brings on the tariff front, but if the economic outlook doesn’t deteriorate further, the BoC will be considering a pause after cutting at seven straight meetings.”
The Bank of Canada is in a challenging spot, given that a trade war with the U.S. could push the Canadian economy into a recession in the coming quarters but also reignite inflation, which was only recently tamed following years of rapid price growth coming out of the COVID-19 pandemic. This kind of “stagflation” shock forces the central bank to choose between lowering interest rates to support demand through an economic downturn and holding rates steady, or even raising them, to fend off inflation.
Given this trade-off, Mr. Macklem has said the central bank will likely play a secondary role helping hard-hit companies and households in a trade war, and likely won’t lower the policy rate to near zero, as it did in response to COVID-19 and the 2008/2009 financial crisis.
Financial market are now pricing in only two more rate cuts this year, which would take the policy rate to 2.25 per cent.