The annual rate of inflation accelerated sharply to 2.6 per cent in February as the federal government’s temporary tax break came to an end mid-month, Statistics Canada said Tuesday.
That marks a sizeable jump from the 1.9 per cent increase seen in January, when Canadians saw GST and HST taken off a variety of household staples, common gifts and restaurant bills for the entire month. February’s figures are well ahead of the consensus among economists polled by Reuters, which called for 2.2 per cent inflation in the month.
Statistics Canada’s consumer price index is based on final prices paid by Canadians, meaning sales taxes are included in the agency’s calculations. Statistics Canada calculations show that, without the tax break in place for half a month, inflation would have come in at three per cent in February.
With the tax holiday still in place until Feb. 15, restaurant food prices were down 1.4 per cent year-over-year. But Statistics Canada noted the reintroduction of the sales tax mid-month meant dining out was contributing the most to the acceleration in the overall price index in February.
Alcoholic beverages, children’s clothing and toys were also included in the tax holiday and saw their costs drop similarly in February, but not as much as in January.
February’s increase is a “massive” rise, Benjamin Reitzes, manager director and macro strategist with BMO Capital Markets Economics, said in a note to clients, “lifting inflation to an eight-month high.”
But the increase wasn’t solely due to the tax impact, he observed, noting that seasonally-adjusted CPI saw an increase of 0.4 per cent even without the mid-month return of GST/HST taken into account.
“The headline inflation figures are subject to as much noise as we’ve seen in decades and that’s poised to continue for at least another couple of months, making it very challenging to interpret these figures,” he wrote.
Increases seen in every province
The consumer price index rose in every province last month, with Ontario and New Brunswick facing the fastest accelerations.
While gas prices were up 0.6 per cent from January to February, Statistics Canada said the annual comparison showed a deceleration last month, helping to rein in the overall rise in inflation.
Elsewhere, Canadians were paying 18.8 per cent more on travel tours last month, with Statistics Canada pointing to increased demand in travel to the United States over the Presidents’ Day weekend to explain the price hikes.
The February inflation figures do not directly reflect the imposition of tariffs or counter-tariffs between Canada and the U.S., which went into effect after a series of deadlines and announcements in March.
Katherine Judge, an economist with CIBC, warned in a note to clients that CPI could rise past three per cent year over year “in the coming months” as the impact of the tariffs begins to show up in the data.
Bank of Canada governor Tiff Macklem, who cut the bank’s key interest rate on Wednesday, said the bank expects tariffs to impact inflation in a few ways, including changes to export markets and supply chains, as well as shifting domestic consumption and saving habits.
The CPI report comes just a week after the Bank of Canada announced another cut to its key interest rate to help manage inflation, continuing a series of cuts that started in June 2024.
Reitzes says he believes that the Bank of Canada could see the CPI report as a sign to take a cautious tone as they seek to mitigate the impact of tariffs.
“We’ll see what early April brings on the tariff front, but if the economic outlook doesn’t deteriorate further, the BoC will be considering a pause after cutting at seven straight meetings,” he said.
