Annual pace of inflation cools to 2.2 per cent in February from 2.4 per cent in January

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Annual pace of inflation cools to 2.2 per cent in February

The Canadian Press

The Canadian Press Staff

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Published Wednesday, March 18, 2020 4:17AM EDT Last Updated Wednesday, March 18, 2020 10:45AM EDT

Signage mark the Statistics Canada offiices in Ottawa on July 21, 2010. THE CANADIAN PRESS/Sean Kilpatrick

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OTTAWA -- The annual pace of inflation slowed in February, and economists suggested the pace will cool even further this year as the COVID-19 pandemic takes its toll on the economy.

The consumer price index in February rose 2.2 per cent compared with a year ago, Statistics Canada said Wednesday.

The increase comes after a year-over-year increase of 2.4 per cent in January.

"Of course, this is the 'before' picture, and based on the plunge in oil prices alone, headline inflation is poised to drop well below two per cent as soon as next month's report," Bank of Montreal chief economist Douglas Porter wrote in a report.

"Given that gasoline prices are on track to drop by more than 15 per cent in March alone from last month sets the stage for a rapid pullback in inflation. Simply, it will be a long time before we are again even talking about inflation getting back up to the Bank of Canada's target (of two per cent)."

Economists had expected a reading of 2.1 per cent for February, according to a poll by financial markets data firm Refinitiv.

The Bank of Canada, which aims to keep inflation within a target range of one to three per cent, has cut its key interest rate target twice in recent weeks in an effort to boost the economy in the face of the spread of the novel coronavirus and a plunge in oil prices.

The central bank's key interest rate, which the large banks look to when setting their prime rates, now sits at 0.75 per cent.

"Canadian inflation trends were essentially right on target just before the virus intruded," Porter said.

"This will almost certainly be the last time we will see two per cent inflation for an extended period of time. In that environment, the Bank of Canada has a free hand to do what it takes to support the economy."

Statistics Canada said prices rose on a year-over-year basis in seven of the eight major components it tracks, with transportation and shelter prices contributing the most to the overall increase.

Transportation rose 4.4 per cent compared with a year ago, while shelter prices climbed 2.3 per cent.

Prices for household operations, furnishings and equipment edged down 0.2 per cent, the category's fifth consecutive month lower, largely due to lower prices for telephone services and household durable goods.

Excluding gasoline, the annual pace of inflation for February came in at 2.0 per cent, matching the increase in December and in January.

Royce Mendes, a senior economist at CIBC, wrote in a note to clients that lower oil prices will weigh on prices in March, but added that other categories including, but not limited to airfares, hotels, restaurants and clothing stores are also likely to weaken as the effects of COVID-19 show up more clearly.

"While there will be a slight offset from a weaker Canadian dollar, that won't have any impact on the thinking at the Bank of Canada, unless trading in the currency becomes disorderly," Mendes said.

Here's what happened in the provinces (previous month in brackets):

Newfoundland and Labrador: 1.7 per cent (2.2)
Prince Edward Island: 2.2 (3.0)
Nova Scotia: 2.5 (2.6)
New Brunswick: 2.2 (2.5)
Quebec: 2.3 (2.7)
Ontario: 2.0 (2.1)
Manitoba: 2.3 (2.5)
Saskatchewan: 1.9 (2.3)
Alberta: 2.5 (3.0)
British Columbia: 2.4 (2.3)

The agency also released rates for major cities, but cautioned that figures may have fluctuated widely because they are based on small statistical samples (previous month in brackets):