Canadian Consumer Price Index (February 2023)

Inflation cools further in February 

• Consumer price inflation continued to ease up in February, at 5.2% versus a year ago (y/y), from 5.9% in January. That is a couple of ticks lower than forecasters were expecting. 
• For the first time in over two years, energy prices declined on a year-on-year basis – 0.6% y/y. Gasoline prices led the drop, and are down 4.7% versus a year ago. 
• Food inflation also cooled in February, but remained at an eye-popping 9.7% y/y, versus 10.4% in January. 
• Shelter inflation continued to cool, but was still up 6.1% y/y in February. Homeowners' replacement costs slowed to 3.3% y/y, however the mortgage interest cost index continued to rise at a faster year-over-year pace amid the higher interest rate environment, rising 23.9% in February, the largest increase since July 1982.
• There were a couple of areas where price pressures picked up on a monthly basis. Clothing and footwear inflation rose 0.7% m/m, after a 0.3% m/m decline in January and household operations, furnishings and equipment rose 0.9% m/m after a 0.4% decline in January. 
• Underlying inflation pressures cooled modestly in February. CPI ex-food and energy eased one tick to 4.8% y/y from 4.9% in January. The BoC's core inflation gauges also eased in February, with CPI-trim at 4.8% y/y (5.1% in Jan.) and CPI-median at 4.9% y/y (5.0% in Jan.).
• Year-on-year changes can be heavily influence by base effects, and zeroing in on inflation trends over the past three months shows that the BoC core measures are running at 3.8% on an annualized basis for median and 3.3% for trim. This suggests that underlying inflation pressures will head lower on a year-on-year basis in the coming month.   

Key Implications

• Inflation in Canada continues to cool from it's peak pace last year. However, with the core measures just below 5% y/y, they still have a way to go before they are comfortably within the Bank of Canada's target 1-3% range. As outlined in our recent forecast, we expect that to be achieved in the second half of the year. 
• There was nothing in today's inflation report that would move the Bank of Canada off of its pause on interest rate moves. Unlike the Federal Reserve, domestic inflation trends mean the BoC can ride out the current volatility in financial markets driven by stresses in the banking sector internationally (see report). 

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