Canada’s inflation jumps well above expectations in February

Canada’s annual inflation unexpectedly jumped to 2.6% in February, hitting the highest in eight months and rising above the midpoint of BoC’s 1%-3% target range for the first time in seven months, after 1.9% increase previous month and strongly beat expectations for 2.1% rise.

The month-on-month figure showed surprise jump in consumer prices by 1.1% in February, after a marginal increase by 0.1% previous month, while BoC’s preferred gauge for core inflation – median and trimmed CPI both rose to 2.9% in February from 2.7% in January.

The major drivers of the increase in the entire CPI basket were restaurant food prices, alcohol and some clothing, along with increase in cost of transportation and shelter.

Higher-than-expected inflation highlights the difficult position Canada’s economy is in as US tariffs take effect.

Growing economic uncertainty prompted the central bank to cut interest rates in the policy meeting last week, but the latest inflation numbers boost market bets for a pause in monetary policy easing cycle in next month’s meeting.

Economists remain pessimistic and expect prices to keep rising further due to US tariffs and countermeasures from Canada, that will also add more pressure on the Bank of Canada’s policymakers.