By Robb M. Stewart
OTTAWA--The pressure on Canadian wallets eased again last month with the annual pace of inflation decelerating to its slowest in eight months, an unexpected move likely to fuel expectations interest rate cuts are around the corner.
Consumer prices rose 2.8% in February from a year earlier, Statistics Canada reported Tuesday, where economists expected the rate to advance to 3.1%.
It marks a second month running the consumer-price index has been inside the Bank of Canada's 1% to 3% target, after it cooled to 2.9% in January.
On a month-over-month basis, inflation climbed 0.3% after no change in the first month of the year.
Bank of Canada Gov. Tiff Macklem has cautioned the path to taming inflation back to the 2% midpoint of the central bank's target on a sustained basis is likely to be slow and uneven. Most economists had penciled in a pivot to rate cuts only in June or July.
Annual inflation continues to be buoyed by shelter costs, with rent and mortgage interest costs two of the biggest drivers. Still, consumers saw relief in February in lower cellphone and internet service costs and an easing in price increases at grocery stores.
Excluding food and energy costs, the consumer-price index advanced 2.8% in February from a year earlier.
Two measures of annual core inflation the central bank closely monitors also continued to cool. Weighted median and trimmed mean CPI rose an average 3.15%, the softest level since August 2021 and compared with 3.35% growth in January.
Economic growth in Canada has been sluggish as high interest rates have held back demand and worked to cool price pressures, though Bank of Canada policymakers have been concerned about the persistence of underlying inflationary pressures. The central bank earlier this month left the rate steady at more than two-decade high 5% for a fifth consecutive meeting and Gov. Tiff Macklem stressed it remained too early to consider lowering rates.
The bank next decides on rates April 10, when it also is due to update its economic forecasts. The economy has been running modestly stronger than the Bank of Canada's last projection, released in January, for growth of close to zero through the first quarter of this year, while inflation had so far tracked its expectation to remain close to 3% through the first half before gradually returning to desired 2% midpoint of its target range in 2025.
February's deceleration in headline inflation was thanks to a 26.5% fall in cellphone costs for customers signing up to a phone plan in February, building on a fall in prices and increases in data allowances the month before. Prices for internet services also dropped sharply, thanks to special offers from providers.
Prices for food bought at stores eased further rising 2.4% on month. Grocery prices remain elevated and have increased almost 22% between February 2021 and last month, but the annual growth was for first the first time since October 2021 slower than headline inflation.
Offsetting that, Canadians paid more for gasoline in February as global prices for crude oil increased following expectations that some oil-producing countries would extend voluntary production cuts, the data agency said. Consumers also faced higher prices for travel tours, thanks to seasonal demand for trips to destinations in the U.S., Mexico and the Caribbean.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
03-19-24 0854ET
