Canada Inflation Research Brief

Underlying pressures mount. Inflation rose 2.6 per cent in February, up from a 1.9 per cent increase in January and well above the consensus of a 2.2 per cent jump. Price acceleration was broad-based, as inflation inched higher in six out of eight components. Lower interest rates are now feeding through into stronger household consumption, hitting 5.6 per cent annualized in the fourth quarter of last year. The end of the GST tax break partway through the month also contributed notable upwards pressure to prices for eligible products. Yet even when removing the tax implication, underlying price pressures are accelerating. Both of the central bank’s measures of core inflation jumped 20 basis points to 2.9 per cent – or a three-month annualized rate of 3.3 per cent – reinforcing a trend that began to emerge over the latter parts of last year. Amid ongoing uncertainty stemming from a looming trade war, the Bank of Canada will have to balance reaccelerating price pressures with downside risks to economic growth.