Canada’s annual inflation rate unexpectedly fell to 2.8% last month, amid sharp declines in cellular and internet services as well as slower grocery price growth.
Statistics Canada released its February consumer price index report Tuesday, which shows price growth softened for a second consecutive month.
Economists were widely expecting Canada’s inflation rate to have risen above January’s 2.9%, in part due to higher gasoline prices.
“This is an unambiguously good report from the Bank of Canada’s perspective. It essentially shows that high interest rates are working to tame inflation, which is what they’re looking for to start cutting interest rates,” said Katherine Judge, a director at senior economist and CIBC Capital Markets, in an interview.
The federal agency says prices for wireless services were down 26.5% and internet prices fell 13.2% from a year ago.
Prices for food purchased at stores in February were up 2.4% from a year ago, marking the first time prices grocery prices rose more slowly than overall inflation since October 2021.
However, that’s little relief to Canadians who continue to pay significantly higher prices for food than they did a few years ago. The federal agency says grocery prices increased 21.6% between February 2021 and February 2024.
Meanwhile, housing costs continue to put upward pressure on inflation, with mortgage interest costs up 26.3% and rent up 8.2% annually.
Still, the report Tuesday is encouraging for the Bank of Canada, which is looking for more evidence that inflation is sustainably headed back to the country’s 2% target before it moves to lower interest rates.
The central bank’s preferred core measures of inflation, which strip out volatility in prices, also fell last month.
“The core measures are the ones that are really important from the Bank of Canada’s perspective, because they exclude things that aren’t a good signal of underlying demand,” Judge said.
“What makes it such an unambiguously good report is the fact that the weakness wasn’t in these volatile, supply-driven headline items. They were actually beneath the surface.”
Judge said the “last piece of the puzzle” for the central bank will be seeing more softness in the labour market.
Economists continue to widely expect the Bank of Canada to begin cutting its key interest rate around the middle of the year.