Canada’s inflation numbers for February flummoxed analysts again, slowing to 2.8 per cent year over year instead of rebounding to 3.1 per cent as most analysts predicted.
In January, the headline number for the consumer price index (CPI) came in at 2.9 per cent, also lower than analysts expected.
Cuts ‘sooner than later’: Central 1 Credit Union
The Bank of Canada has enough evidence that the threat of inflation is receding to start cutting rates “sooner rather than later,” Bryan Yu, chief economist at Central 1 Credit Union, said in a note.
Inflation reports for January and February have provided “back-to-back” readings below three per cent — the top end of the Bank of Canada’s inflation target — for the first time since March 2021, Yu said.
Prices slowed in a variety of categories including food, cellphone plans, furniture and appliances.
Shelter costs, though, are still a counterweight, as rents rose 8.2 per cent year over year, while mortgage interest costs were up 26.6 per cent.
“Shelter remains a challenge, but lower interest rates will further ease inflation and population driven demand (alongside supply constraints) are outside the bank’s control, meaning it will need to look through this driver,” Yu said.
He expects inflation to continue slowing as a growing workforce caps wage increases.
“A June cut remains most likely our view, but an April move is now back on the table,” Yu said.
Sigh of relief’: Desjardins Group
“Monetary policymakers will be able to breathe a sigh of relief after seeing these numbers,” Royce Mendes, managing director and head of macro strategy at Desjardins Financial, said in a note.
Inflation is weaker than the Bank of Canada previously estimated and February’s CPI report provides proof of that, he said, pointing out that core inflation, excluding food and energy, slowed to 2.8 per cent from 3.1 per cent in January.
Prices have cooled across a broad swath of components in the CPI basket, with the share of items rising more than three per cent — “a metric closely watched by governor (Tiff) Macklem” — shrinking to 40 per cent from 45 per cent.
“We expect central bankers will sound more dovish in April, thereby setting up a rate-cutting cycle beginning in June,” Mendes said.