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The Quick Take: March 23, 2018

Inflation Jumps 0.5 Percentage Points in February

Alicia Macdonald
Principal Economist
National Forecast

“After moderating to a 1.7 per cent pace in January, year-over-year price growth jumped 0.5 percentage points in February with headline inflation reaching 2.2 per cent. Core price growth also accelerated with all three of the Bank of Canada’s measures showing stronger growth last month. With inflation firming, we expect the Bank of Canada to continue on its rate increase path with another hike in July.”

The Consumer Price Index posted growth of 2.2 per cent in February, a sharp acceleration from January’s 1.7 per cent pace.

All three measures of core inflation also strengthened last month, with the trim and median measures coming in at 2.1 per cent while CPI-common inched up to 1.9 per cent.

The impact of Ontario’s January increase in the minimum wage was evident in the province’s inflation numbers with minimum wage sensitive categories such as food purchased from restaurants, and childcare and housekeeping services showing large increases. Despite strong price growth in these individual categories, overall inflation in Ontario was 2.1 per cent in February, slightly below the national average.

In a separate release, Statistics Canada reported this morning that nominal retail sales increased 0.3 per cent in January and 0.1 per cent in real terms. The increase in volume adjusted terms was modest given that they had fallen 0.7 per cent in December.

Overall, today’s data reinforces the idea that the economy is operating very close to its productive capacity, but that growth has slowed sharply from the pace observed over the first half of last year.

With inflation firming, we expect that the Bank of Canada to continue to increase interest rates. However, given the recent slowdown in growth and the number of risks facing the economic outlook, as outlined in our recently released Canadian Outlook, we expect that rates will increase at a gradual pace with the next upward adjustment in July.

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