Canada’s annual inflation rate slowed to 1.8 per cent in February, according to Statistics Canada data published Monday. Economists had expected the inflation rate to drop to 1.9 per cent from 2.3 per cent in January, according to CIBC Economics’ consensus estimates.
Economists highlighted that the subdued Monday data will give the Bank of Canada (BoC) room to hold rates steady before the war in Iran begins to reverberate through prices.
“The tame report will be welcomed by policymakers ahead of the energy price shock, as it shows that labour market slack is keeping a lid on core prices, with the issue for the BoC being how long the oil price shock lasts for and its magnitude,“ CIBC economist Katherine Judge wrote in a morning note to clients.
Economists broadly expect the BoC to stay on the sidelines at its interest rate announcement on Wednesday. Desjardins economist Royce Mendes said the “weak” inflation data will let the BoC ”leave rates unchanged until well into 2027.”
BMO chief economist Douglas Porter wrote that “the Bank should be considering cutting rates, not raising them, in this economic backdrop.“
The weaker February comparison was in large part due to base-year effects, with prices rising more slowly than in February 2025, when the end of a government tax holiday caused the cost of certain goods to jump significantly.
“The most notable index impacted by the base-year effect in February 2026 was food purchased from restaurants, in addition to smaller impacts from alcoholic beverages and toys,“ the agency’s report on the new data notes.
Core measures of inflation, which the BoC uses to strip out goods and services with more volatile prices, continued to moderate in the February data. CPI-median and CPI-trim each fell to 2.3 per cent (from 2.5 and 2.4 per cent, respectively), while CPI excluding food and energy fell to 2.0 per cent. On a three-month annualized basis, the BoC’s preferred core measures have fallen to an average of just 1.0 per cent, BMO’s Porter noted. RBC’s Claire Fan noted that about 31 per cent of the consumer price basket was rising at more than a three per cent annualized pace between December and February, down from 42 per cent in January.
“With most measures of core inflation close to the Bank’s two per cent target, policymakers can more readily look through the oil-driven spike that is surely coming to headline inflation in the next few months,” Porter wrote. That stance is even more likely, he added, given weak job data released last Friday and ongoing uncertainty around the Canada–U.S.–Mexico Agreement (CUSMA).