Canada's inflation rate unexpectedly eases to 2.8% in February

FILE PHOTO: People pay for their items at a grocery store in Toronto, Ontario, Canada November 22, 2022. REUTERS/Carlos Osorio/FILE PHOTO

OTTAWA (Reuters) – Canada’s annual inflation rate in February unexpectedly cooled to 2.8%, the slowest pace since June, and core inflation measures eased to more-than two-year lows, data showed on Tuesday, likely boosting expectations of a mid-year rate cut.

Analysts polled by Reuters had forecast inflation to accelerate to 3.1% from 2.9% in January. On the month, the consumer price index rose 0.3%, less than a forecast of 0.6% rise.

Prices of cellular services, food purchased from stores, and internet access services were the main contributors to the deceleration in inflation in February, Statistics Canada said. Grocery prices increased 2.4%, slower than the headline inflation rate for the first month since October 2021.

The Bank of Canada’s (BoC) preferred measures of core inflation edged down to their lowest levels in more than two years. CPI-median slowed to 3.1% from 3.3% in January while CPI-trim decreased to 3.2% from 3.3%.

CPI-median has slowed or held steady for 5 consecutive months and is now at the lowest pace since the 3.1% recorded in November 2021. CPI-trim’s pace decelerated for the second consecutive month and is now slowest since the July 2021.

The central bank has said it is looking for sustained evidence of downward momentum in underlying inflation to consider lowering interest rates.

The BoC in January projected headline inflation to remain around 3% in the first half of 2024, before cooling down to 2.5% by the end of the year. The bank will update its forecasts next month.

The bank increased rates by 475 basis points to a 22-year high between March 2022 and July 2023 and has kept them on hold since then for five consecutive meetings in its efforts to cool inflation. At its last rate announcement in March, the bank said underlying inflation meant it was too early to consider a cut.

The next rate announcement is on April 10, when money markets largely expect the bank to remain on the sidelines. Markets saw a roughly 50% chance of a cut in June before inflation data.

Offsetting the inflation deceleration in February was a year-over-year increase in gasoline prices, which rose 0.8% in February after a 4% decline in January, Statscan said.

Excluding volatile food and energy, prices rose 2.8% compared with a 3.1% rise in December.

Services inflation came in at 4.2%, while goods inflation rate was 1.2%.

(Reporting by Ismail Shakil in Ottawa; Editing by Dale Smith)