Annual rate of inflation accelerates sharply to 2.6% in February as tax break ends
The annual rate of inflation accelerated abruptly at 2.6 percent in February, when the temporary division of the Federal Government ended in the middle of the month, said Statistics Canada Tuesday.
This marks a considerable leap from the increase of 1.9 percent seen in January, when the Canadians saw GST and HST have removed a variety of domestic staples, common gifts and bills for the entire month.
The figures of February are far ahead of the consent between the economists interviewed by Reuters, which required the inflation of 2.2 percent in the month – and some economists believe that this increase can lead to a break in the cuts to the rates from the Canada bank.
Statistics Canada’s Consumer Price Index (CPI) is based on the final prices paid by the Canadians, which means that sales taxes are included in the agency’s calculations.
With the fiscal holidays still taking place until February 15, the food prices of the restaurant decreased by 1.4 percent year on year. But Statistics Canada observed that the reintroduction of the sales tax in the middle of the month meant that dinner outside was contributing to the maximum to the acceleration in the total prices index in February.
Alcoholic beverages, children’s clothing and toys have also been included in tax holidays and have seen their costs descend in February, but not as much as in January.
When the tax subdivision has been put into force, it reduced the final price of the invoice when a meal in a restaurant was obtained, transforming a $ 100 invoice to about $ 90, for example – and this presents itself as a drop in prices in inflationary terms, explained James Orlando, director of economics of the TD Bank.
This also means that when these taxes were reapplied, increasing that final price again, it is also recorded as a sudden increase in inflation.
“But what we discovered today is that it does not only go from $ 90, from $ 100. It is also going higher than that,” said Orlando. “There is something else that is happening where there is inflation at the base that increases in this country.”
The calculations of the statistics in Canada show that without the tax interval in place by half a month, the inflation would have reached three percent in February.
The increase in February is a “massive” increase, Benjamin Reitzes, manager of managers and macro strategas of Bmo Capital Markets Economics, said in a note to customers, “raising inflation to a maximum of eight months”.
He also observed that the increase was not due exclusively to the tax impact, noting that CPI rectified seasonally it recorded an increase of 0.4 percent even without the mid -month performance of GST/HST considered.
“The figures of the title inflation are subject to so much noise that we have seen in decades and this is ready to continue for at least another couple of months, making it very difficult to interpret these figures,” he wrote.
Increases seen in each province
The consumer price index increased in each province last month, with the Ontario and the New Brunswick face the fastest accelerations.
While gas prices increased by 0.6 percent from January to February, Statistics Canada said that the annual comparison showed a deceleration last month, helping to curb the overall increase in inflation.
Elsewhere, the Canadians were paying 18.8 percent more than year during travel tours last month, with Statistics Canada indicating a greater demand on travel to the United States during the weekend of the presidents of the presidents to explain prices for prices. This marked a 23 % increase in travel prices compared to the previous month.
The favorite metrics of the basic inflation of the Bank of Canada arrived in “warmer than expected” in February and are ready to continue to climb the months to come, said the Senior economist of TD Bank Leslie Preston in a note to customers Tuesday.
The governor of the Canada Bank Tiff Macklem, who cut the bank’s key interest rate on Wednesday, said that the bank provides that the rates affect inflation in some ways, including changes to the export markets and supply chains, as well as to move internal consumption and savings habits.
The figures of February inflation do not directly reflect the imposition of tariffs or counter-hedes between Canada and the United States, which have entered into force after a series of deadlines and announcements in March.
The judge of Katherine, Cibc’s economist, warned in a note to customers that the IPC could climb over three percent year to year “in the coming months” when the impact of rates begins to present itself in the data.
Economists divided into rates cut impacts
The CPI report only arrives a week after Bank of Canada has reduced its key interest rate of a quarter of the 2.75 percent point to help manage inflation, continuing a series of cuts started in June 2024. The next decision is set for April 16.
Economists are divided on the fact that this strong increase in the consumer price index can trigger a change to this trend.
Preston said that, on the basis of a prediction in which the US rates remain in force for six months before reducing, TD asks for a pair of cuts to a quarter of the next decision of the Canada bank.
Reitzes claims to believe that the Canada bank can see the CPI report as a sign to take a cautious tone while trying to mitigate the impact of rates.
“We will see what it carries at the beginning of April on the tariff front, but if the economic perspectives do not deteriorate further, the Boc will consider a break after cutting seven consecutive meetings,” he said.
If we see a break in the cuts it could be hung on what happens on April 2, according to the judge – the day when the president of the United States Donald Trump has promised that another round of rates will come into force.
“If a 25 [per cent] The rate is avoided, the Boc will probably stop at the April meeting to evaluate the pressure of the IPC, “he said.
