Core inflation easing but supply risks persist – RBC

Royal Bank of Canada (RBC) Senior Economist Claire Fan notes that Canadian headline inflation slowed to 1.8% in February, but base effects from last year’s GST/HST holiday and the removal of the consumer carbon tax distort comparisons. Core trim and median CPI eased to 2.3% year-over-year and just 1% on a three‑month annualized basis, while supply‑side pressures and higher Oil prices pose ongoing risks.

Core CPI cools as supply shocks linger

“Headline inflation slowed to 1.8% in February, though comparisons remain distorted by last year’s GST/HST holiday (which extended through mid-February) biasing food prices higher, and the removal of the consumer carbon tax in April 2025, which depressed energy CPI.”

“The Bank of Canada’s core trim and median CPI measures—which exclude volatile monthly swings and indirect tax changes— offer clearer reads. In February, they continued to ease and averaged 2.3% year-over-year, the slowest pace in almost five years. On a three-month annualized basis, these measures averaged just 1% in February, well below the Bank of Canada’s 2% target.”

“While the moderation in those core CPI measures is welcome as it suggests easing demand-driven inflation pressure, Canadian households continue to face supply-side headwinds, particularly in grocery items like beef and coffee where production disruptions from adverse weather take time to resolve.”

“That won’t be the last of supply-driven inflation: elevated oil prices from ongoing Middle East tensions will translate into higher energy inflation in March.”

“At this week’s meeting, we expect the BoC to recognize growing external uncertainty but continue to hold the overnight rate at its current, borderline accommodative level of 2.25%.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)