Canada: Falling Headline Inflation Masks Sticky Core Pressures Lurking Below

Total CPI inflation posted a seasonally-adjusted monthly advance of 0.1% in February. This translated into a gain of 5.2% over the year-ago level. Much of February’s below-consensus inflation print can be chalked up to the falling cost of energy. On a monthly basis, energy prices fell by 1.2%, helping to drive the first year‑over‑year decline since January 2021 (-0.6%). On the flip side, food prices advanced another 0.6% in February, a sharp deceleration from January’s 1.7% gain. Excluding food and energy, prices were 4.8% higher in February than they were a year earlier, a modest deceleration from January’s 4.9%. However, on a monthly basis, this frequently-used measure of core inflation accelerated two ticks above the January pace to +0.3% (sa). Leadership at the Bank of Canada said they would need to see an ‘accumulation of evidence’ that inflation is not evolving in line with their forecast to move from their current protracted pause. The goods news is that inflation continues to decelerate. This reinforces the Bank’s current holding pattern.