Canada’s inflation rate decelerated to 2.8% in February, a positive development for central bank policymakers who’ve been waiting for more proof that their campaign of higher interest rates is working.
It’s the first time the country has had two straight months of sub-3% inflation since early 2021. Here’s what economists and strategists had to say:
“Building on the January CPI report that was already showing broad-based easing in price pressures in Canada, the February report today reaffirmed those trends. Different measures of core inflation all decelerated and the diffusion index that measures the scope of inflation pressures also improved.”
“Overall, we continue to expect a persistently soft economic backdrop to further slow inflation readings in Canada in the months ahead, allowing for the BOC to start lowering interest rates around midyear.”
“The Bank of Canada had projected Q1 inflation to average 3.2% in its January MPR, while we are now headed for 2.8%. That’s a big and welcome difference, but is it sustained enough for rate cuts? April still seems too early to be pulling the trigger on rate cuts, though it can’t be entirely ruled out if the Business Outlook Survey shows even more progress. The softness of the domestic economy and increasing slack driven by higher rates is helping put downward pressure on inflation, just as the BOC intended.”
“February’s inflation report was a little bit of good news for Canadians. After stalling through the second half of last year, that is two months of improvement on the Bank of Canada’s key core inflation gauges. However, the battle isn’t won yet, and we now expect the Bank of Canada will leave the overnight rate unchanged until July, as outlined in our new forecast released today.”
“Monetary policymakers will be able to breathe a sigh of relief after seeing these numbers. We had been saying that underlying price pressures were weaker than what the Bank of Canada had been estimating, so this doesn’t change our view for upcoming monetary easing. We expect central bankers will sound more dovish in April, thereby setting up a rate-cutting cycle beginning in June.”
“Three months of 3-month core below 3% in February, March and April may be the minimum requirement for officials to feel comfortable cutting rates. But we continue to expect that with annual core inflation stuck around 3% in the coming months, modestly stronger growth than in the BOC’s forecasts, and the remaining potential for upside risks to house prices in the spring, officials will need more than the minimum evidence inflation has slowed. We continue to expect the first cut in July.”
Andrew DiCapua, senior economist at the Canadian Chamber of Commerce.
“Governor Tiff Macklem will also take this as good news – and a signal that our current holding pattern is working. But we shouldn’t expect any moves from the bank until June. With two more inflation updates, updated surveys on expectations, and a federal budget, the bank will want to see the data and build a case for any changes before they present anything to Canadians.”
“The BOC has been clear that it needs to see sustained progress on inflation before easing its monetary policy, and this morning’s report provides it. A growing emphasis on CPI excluding mortgage interest costs (the largest contributor to inflation) also reinforces the BOC’s dovish tilt. Combined with nearly zero economic growth since the second half of 2023, we continue to anticipate that the BOC will set the stage for a June cut at its April 10 monetary policy report.”
CMP
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