Consumer price inflation accelerated to 5.7% year-on-year (y/y) in February, up from 5.1% in January, ahead of the consensus forecast for 5.5% and the highest rate in over 30 years.
Energy price growth accelerated to 24.1% (from 23.1% in January), as gasoline price growth hit 32.3% year-on-year (up from 31.7% in January). Food price inflation also moved higher, to 7.4% (from 6.5% in January) – the highest in over decade.
The acceleration in price growth was not just a food and energy story, however. Excluding these categories, inflation was up 3.9% y/y (from 3.4% in January).
Seasonally adjusted, month-on-month prices were up a robust 0.6% for a second straight month. Once again, price growth was broad and swift across categories in February, led by transportation (+1.1%), food (+1.0%), and shelter (+0.6%). Only clothing and footwear pulled back in the month, while price growth was soft for recreation and alcohol and tobacco after strong lifts in January.
All three of the Bank of Canada’s core inflation metrics rose in February. CPI-trim rose 0.3 percentage points to 4.3%, CPI-common by 0.2 percentage points to 2.6%, and CPI-median by 0.1 percentage points to 3.5%. At 3.3%, the average of the three measures is the highest since August 1991, the same record as the headline.
Key Implications
Once again inflation has surprised to the upside. The shock is wearing off. The outlook for inflation is clouded by the fog of war. Commodity price volatility has soared in recent weeks. Prices skyrocketed at the outset of the conflict, but have since fallen back. It is difficult to predict with any confidence their path from here, but it will depend in no small part on whether the conflict escalates further or moves toward peaceful resolution.
Even if prices are more staid from here, the impact will be felt in higher inflation in March. Prices are running well ahead of income growth, but with a robust labor market, nominal wage growth is also showing signs of accelerating. That is a good sign for ongoing economic growth but demands attention from a central bank set on guiding inflation back to its 2% target.
Rising commodity prices increase inflation and hurt consumers, but are not necessarily negative for the Canadian economy overall, whose producers benefit from higher prices that are born in part by our trading partners. As such, they should do little to dissuade the Bank of Canada from normalizing monetary policy.
