Inflation Falls Sharpest in February Since Covid Recession

The Bank of Canada is shown in Ottawa on July 12, 2022. (The Canadian Press/Sean Kilpatrick)

Inflation in Canada saw a sharp deceleration in the month of February to reach a 5.2 percent year-over-year increase compared to 5.9 percent in January. This was the largest drop since April 2020, the month after stock markets reached rock bottom due to the pandemic recession.

Statistics Canada says that despite inflation slowing in recent months prices have remained elevated. It notes inflation has increased 8.3 percent compared with 18 months ago.

Consumers are seeing no respite at the grocery stores, with food prices still climbing. February saw a 10.6 percent year-over-year increase compared to 10.4 percent in January.

Statistics Canada attributes food inflation to supply constraints due to bad weather in growing regions along with a higher cost for animal feed, energy, and packaging materials.

The price of gasoline has come down significantly from its peak of over $2 per litre last summer, but the price for diesel, which fuels commercial transportation and agriculture, has remained elevated.

The Canadian average for gas was 148.5 per litre in February, whereas diesel still goes for over $2 per litre in Eastern Canada.

Statistics Canada says Canadian drivers paid 1 percent less for gasoline on a monthly basis in February due to greater crude oil supplies in the U.S.

The data also shows the effects of the rising interest rates on the housing market, with shelter costs rising at a slower pace year-over-year for three months in a row.

This is due to a lower homeowner replacement cost index, which relates to the price of new homes, and commissions on the sale of real estate also decelerated.

But if the housing market has cooled, Canadians having to renew their mortgages in the current rate environment are taking a serious hit.

Statistics Canada says the mortgage interest cost index increased year-over-year at the fastest rate since July 1982, with 23.9 percent in February compared to 21.2 percent in January. Inflation in 1982 was on average over 10 percent.

The Bank of Canada (BoC) is trying to reign in the current bout of inflation that was caused in part by its injection of liquidity in the economy during the pandemic, causing excess demand.

After going on an aggressive hiking spree, which saw its policy rate climb 4.25 percent in the span of months, the BoC announced on March 8 it was maintaining its posture.

However its says it’s prepared to raise rates further to reach its 2 percent target for inflation. Much will also depend on the U.S. Federal Reserve’s rates decisions given the interconnectedness of the two economies.

The BoC says it expects the Consumer Price Index, which measures inflation, to come down to around 3 percent in the middle of the year.

BoC Governor Tiff Macklem previously said Canada could experience negative growth in 2023. The economy already had zero GDP growth in the fourth quarter of 2022.

Peter Wilson contributed to this report.