Canada's headline consumer price index (CPI) rose 1.1 percent year-on-year in February, up slightly from a 1.0 percent increase in January, according to new data from Statistics Canada this morning. The increase was almost entirely the result of a jump in gasoline prices, which rose 6.5 percent in the month to stand 5.0 percent higher than in February 2020. Excluding gasoline the year-on-year rise in CPI for February, at 1.0 percent, was actually lower than the 1.3 percent rise posted in January.
The Bank of Canada's three preferred measures of core inflation all posted the same year-on-year increase in February as they had in January, for an average rise of just over 1.7 percent. Taken together with the headline number, these aggregates show that inflation remains well below the 2 percent midpoint of the Bank's target range.
All the same, gasoline prices have continued to rise during March, against a background of rising global oil prices. The analysts' consensus is already looking for headline CPI to edge up again this month, and further increases are likely in the next few months as last year's low gas prices and the impact of the first wave of the pandemic fall out of the calculation. This will bring the headline figure close to or even slightly above 2 percent by mid-year.
The Bank of Canada has already made it clear many times that it will look through this spike, which it expects to be short-lived. It intends to keep rates on hold until CPI is sustainably at the 2 percent level, something it does not expect to happen until 2023. It will be interesting to see how the media will react as CPI continues to tick higher in the next few months. With the Canada ten-year bond yield above 1.60 percent at the time of writing, financial markets continue to signal that they do not entirely share the Bank of Canada's optimism.
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