Canada’s inflation picture is about to get complicated.
What happened: Canada’s annual inflation rate rose to 2.6% last month, up from 1.9% in January, and outpaced analyst estimates of a 2.2% increase. It’s the largest jump in eight months and the first time in six months inflation breached the Bank of Canada’s 2% target.
Why it matters: The end of the GST holiday in mid-February was a major factor in driving costs up — but it was expected. What’s more concerning is the surprising across-the-board rise in prices just as a trade war is projected to further stoke inflation and stunt GDP growth.
- Prices for over 50% of items and services in the basket used by Statistics Canada to calculate inflation grew by a rate of over 3%, up from about 40% of the basket two quarters ago.
Big picture: Canadian inflation is experiencing, per BMO analyst Benjamin Reitzes, “as much noise as we've seen in decades.” The U.S. tariffs set to come back into effect on April 2 could immediately drive up prices. At the same, the repeal of the consumer carbon tax will bring energy prices down. The result will be inflation prints that are hard to get a read on.
What’s next: The central bank will have its hands full managing all these mixed signals at its next interest rate decision on April 16, with many analysts now expecting it to hold.—QH