Canada’s consumer prices in February rose 1.4% y/y, as compared with the rise of 2% y/y in January. The slowdown in price growth was mainly due to lower gasoline prices, which declined 13% y/y. The consumer price index excluding gasoline rose 1.9% in February, as compared with 2% in January. Core inflation, excluding the most volatile items, rose 1.9% y/y, a slight deceleration from 2% y/y pace seen in January.
Inflationary pressures were seen almost throughout the board. Food prices continued to lead with a rise of 3.9% y/y. Rise of 17.2% y/y in vegetables and 14.4% y/y in fresh fruit supported the rise in food prices. However, they declined from January’s prices in the Western provinces. Shelter rose 1.2% y/y, as compared with rise of 1.1% y/y in January, whereas the cost of household operations and furnishing grew 1.7% from 1.8%.
Meanwhile, the transportation costs dropped 0.5% y/y in February, as compared with the rise of 2.2% y/y in January. The rise of 5% y/y in passenger vehicle prices was not sufficient to counter the sharp decline in gasoline prices. Clothing and footwear prices declined 1.3% y/y, the second continuous month of decline.
Headline inflation for February was largely weighed on by the sharp fall in gasoline prices in February as compared to the levels one year ago. This is expected to keep inflation lower than 2% in the first three quarters of 2016. Meanwhile, the Canadian dollar’s weakness continued to make imported goods more costly, assisting in maintaining core inflation close to the Bank of Canada’s target rate of 2%.
Inflation in Canada is not much of a concern as the core measure is likely to be close to the central bank’s target throughout 2016. In spite of the Canadian economic growth tracking more than 2% for Q1 2016, the growth for entire 2016 is likely to be moderate as the economy continues to adjust to an environment of lower oil price. This, along with the economic slack built up over the past year, will keep inflationary pressures in check. As such, the monetary policy seems to be appropriate, and the central bank is not expected to move off the sidelines in the near future.
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