The annual rate of inflation cooled to 5.2 per cent in February, Statistics Canada says, though Canadians continued to feel the pain of surging costs at grocery stores.
That compares to an overall inflation rate of 5.9 per cent in January; StatCan said February’s CPI drop marks the largest deceleration in headline CPI since April 2020, the start of the COVID-19 pandemic.
The price of food purchased from the grocery store was up 10.6 per cent year-over-year last month, the agency said in its latest Consumer Price Index report released Tuesday. That’s down from the 11.4 per cent annual increase seen in January.
While StatCan noted food prices “remain elevated,” there was some easing in the latest report compared to January. Food inflation, which includes groceries and food from restaurants, clocked in at 9.7 per cent, down from 10.4 per cent the month earlier.
Food price growth slowed on some key items in February such as meat (up 6.2 per cent vs. 7.3 per cent in January), veggies (up 13.9 per cent vs. 14.7 per cent in January) and bakery products (up 13.9 per cent vs. 15.5 per cent in January).
Some grocery aisles continued to see prices accelerate, however, with costs up 14.8 per cent for cereal, 7.4 per cent higher on fish and other seafood and 6.0 per cent more for sugar and confectionary items.
Fruit juice prices saw a surge of 15.7 per cent last month, compared with 5.2 per cent in January. StatCan pointed to higher costs for orange juice specifically, as these fruits were hit hard by disease and climate impacts tied to Hurricane Ian.
Fuelling the drop in overall inflation was lower gas prices, according to the agency, though it noted that the year-over-year decline is partially attributed to the significant jump prices saw in February 2022 amid Russia’s invasion of Ukraine.
Shelter costs grew at a slower pace for the third consecutive month, StatCan noted, with a 6.1 per cent increase in February.
Conversely, the year-over-year increase in the mortgage cost index came in at 23.9 per cent, the fastest pace seen since 1982. The surge in mortgage pain is tied to higher interest rates from the Bank of Canada.
Since March 2022, the central bank had rapidly raised its policy rate in an effort to cool spending in the economy and, by extension, slow the pace of price increases back to its two per cent inflation target.
But the Bank of Canada left its key interest target unchanged at 4.5 per cent earlier this month, the first time it did not raise the rate since it began increasing it last year. The Bank’s pause is conditional on inflation slowing according to its forecast, which sees price pressures cooling to three per cent annual inflation by mid-2023.
BMO chief economist Doug Porter said in a note to clients on Tuesday morning that while critics might point to the rising mortgage cost index to argue that the Bank of Canada is now fuelling the very inflation it seeks to cool, the inflation rate without this figure still clocks in at 4.7 per cent.
The latest pressure facing central banks worldwide is recent turmoil affecting the banking sector. The collapse of Silicon Valley Bank triggered a wave of concern in the industry leading to other regional banks in the U.S. folding or receiving lifelines and most recently saw Credit Suisse agree to be sold off to a competing Swiss bank.
Some market watchers theorized this uncertainty would push central banks to hold off on their interest rate hikes to avoid pushing the global economy into a sharper downturn. The European Central Bank forged ahead with a 50-basis-point interest hike last week, however, and the U.S. Federal Reserve’s decision on Wednesday will be closely watched.
Back in Canada, big bank economists including Porter think February’s inflation figures will keep the central bank firmly on pause.
Easing in the headline inflation figure as well as the closely watched “core” metrics — those that tend to strip away volatile inputs such as food and gas prices — put the Bank of Canada in a “much less awkward position than many others during the recent financial turmoil,” Porter wrote.
“Overall, the Bank’s pause looks prudent, and we expect them to stay at current levels for quite some time, barring a major flare-up in the banking turmoil.”
Leslie Preston, senior economist at TD Bank, distinguished the Bank of Canada from the U.S. Federal Reserve in a note Tuesday, pointing out that easing domestic pressures north of the border will allow the BoC to “ride out the current volatility” in financial markets.
“There was nothing in today’s inflation report that would move the Bank of Canada off of its pause on interest rate moves,” she said.
RBC economist Claire Fan said Tuesday in a note that the Bank of Canada’s bar for another interest rate was already high, and the “recent financial market turmoil has, if anything, raised that bar higher.”
Fan said the slowing economy will likely push down consumer spending in the months to come, taking more steam out of inflationary pressures and allowing the central bank to stay on the sidelines until the end of 2023.
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