But it’s not in housing; it’s spread across much of the economy. And it’s not just the end of the temporary GST (goods & service tax) holiday.
By Wolf Richter for WOLF STREET.
Inflation has a tendency to dish up nasty surprises, and it did that in Canada today for February, on top of the nasty surprises for January and December.
I’ll just walk briefly through some of the key numbers, and then I’ll post the commentary from the Economics and Strategy shop at the National Bank of Canada, the sixth largest bank in Canada, where the frustration with this mess bleeds through thickly, right from the beginning of their discussion: “The data published this morning by Statistics Canada is enough to shake observers’ convictions about the inflation situation in the country.”
Canada’s overall Consumer Price Index spiked by 0.68% in February from January (8.4% annualized), seasonally adjusted, the worst month-to-month spike since the heady days of June 2022, and way above expectations (blue). The year-over-year CPI rose by 2.6%, the worst increase since July last year (red).
The month-to-month price increases in February were hot to red-hot in 6 of 8 major categories, but were cool in the housing components (shelter) and transportation, which includes gasoline.
In order of month-to-month inflation magnitude:
- Food: +2.04% (+27% annualized)
- Alcohol & tobacco: +1.66% (+22% annualized)
- Recreation & education: +1.16% (+15% annualized)
- Household operations & furnishings: +0.46% (+5.7% annualized)
- Health & personal care: +0.33% (+4.0% annualized)
- Clothing & footwear: +0.32% (+3.9% annualized)
- Shelter: +0.16% (+1.9% annualized)
- Transportation: +0.11% (+1.3% annualized).
“Core” CPI, which excludes the food and energy components to track underlying inflation, spiked by 0.52% in February from March (6.5% annualized), the worst increase since June 2022, after the already expectation-busting increases in December and January (blue in the chart below).
This pushed the year-over-year increase to 2.74%, the worst increase since June 2024, and the third month in a row of acceleration (red):
But it’s not the housing components that pushed up CPI this time. The CPI for shelter, which includes a collection of different housing expenses, decelerated further, and rose only 0.16% in February from January (1.9% annualized), roughly back in the middle of the range before the pandemic (blue).
The year-over-year shelter CPI decelerated to an increase of 4.2% (red):
So here is the frustrated commentary from the Economics and Strategy shop at the National Bank of Canada:
“The data published this morning by Statistics Canada is enough to shake observers’ convictions about the inflation situation in the country.
An acceleration of inflation was certainly inevitable in February with the end of the GST [goods and services tax] holiday in the middle of the month, which will also have an upward impact in March.
To get a more accurate picture of the situation, we have been focusing on inflation measures excluding indirect taxes for some months now. In February, the CPI excluding indirect taxes increased by a whopping 0.4% and the annual rate is now 2.9%, which is close to the upper limit of the Bank of Canada’s target range.
On an annualized three-month basis, this measure stands at 5.1%, its highest rate since September 2023.
There are certainly specific factors to mention, notably travel tours surging (+23% y/y). But that does not mean that inflation was not widespread in February, as evidenced by the central bank’s preferred core inflation measures, which have been growing at rates of 0.3% m/m and annualized rates that exceed the Bank of Canada’s target range over the past three months (CPI-Median at 3.4% and CPI-Trim at 3.3%).
We have repeatedly argued that these measures were skewed upwards by the housing component and that care should be taken in their use. But this was no longer the case in February, as monthly inflation in the housing sector had essentially returned to its historical average during the month.
This bias led us, as well as the central bank, to focus on the diffusion recently, which is not a concern over a year but is enough to raise eyebrows over the last three months with no less than 35 components moving above the target of 2.0% at an annualized rate (average 1999-2019 at 27).
There is no doubt that the Bank of Canada was surprised by the recent price developments in a context where the economy had started to improve.
In such a context, there is a strong chance that the rate cut we were expecting in April will not materialize unless the economy deteriorates very rapidly in a context of tariff uncertainty.
It remains that inflation is a lagging indicator, and the central bank may once again focus on economic variables that could weaken rapidly in the coming months if there is no improvement in trade relations with the United States. That scenario would justify lower path for the policy rate.”
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Canadian here. My guess is that private companies exploit the fear uncertainty and doubt caused by tarrifs threats have to raise prices.
Food, Alcoholic and Recreation categories seem to be the big drivers of the one month spike in inflation in February.
On Jan. 20, 2025: Trump, speaking while signing executive orders hours after his inauguration as president, says he plans to impose 25 per cent tariffs on Canada and Mexico by Feb. 1.
I noted recently peanut butter jumping from $6 to $9 at my local grocery store.
That’s my guess too. Food/alcohol/recreation/travel. It’s too early for the tariffs to have increased these costs directly, but it’s not too early for companies to increase prices pre-emptively.
Tariffs are doing their jobs!
That peanut butter was in Canada well before the tariffs, LOL.
The store is trying to rip you off.
Also, any tariff would be applied to the cost that the importer pays, not your retail price. If Canada puts a 25% tariff on peanut butter from the US, and the importer buys that peanut butter by the container for $1 per jar, a 25% tariff would add C$0.25 to the cost of the jar. If the store raises the retail price by C$3.00, blaming the C$0.25 in tariffs, you need to complain to the store and find a store that doesn’t try to rip you off.
Inflation goes haywire if consumers encourage it by paying these rip-off prices.
Is it possible that Canada like the USA also has 14 computers mainly based in its treasury department that simply print money that’s unacceptable as Elon musk and doge stated about the USA in a real recent report?
I mean isn’t inflation too many dollars chasing the same amount of goods and services? Or am I totally off my rocker? Also gold prices are reflecting something is going on….
🤣🤣🤣❤️❤️❤️ I found one!
You’re referencing an idiotic braindead bullshit story, written by an obliterating moron who took seriously the bullshit Musk said in an interview, hoping that other obliterating morons out there would spread it and turn it into viral clickbait.
I didn’t think it was possible to read and understand Wolf’s website and still fall for that story.
Agreed. The companies are trying to make more money, either because they are trying to rip you off (very possible) or trying to hedge against an uncertain future (also possible). Tariffs gave them the reason for both.
Food and beverage inflation was at 25% annualized, meaning that if they continued their current rate of price increase (they probably won’t) it would exactly capture the expected increase in price after 11 more months of them.
the same companies that feed the USA. also feed the Canadians. time for Canada to nationalize all the food companies & Banks.
Nationalizing won’t do a thing. The issue in Canada is the tiny number of companies distributing the food. All they need is competition, but there are no rules being enforced in Canada to protect consumers from monopolies and from price gouging which has been common practice for the past 10 to 20 years.
Gov’t has gotten into phone service in Canada, it hasn’t dropped the pricing. Gov’t controlled alcohol distribution, it still keeps climbing.
There was a GST or a tax holiday in Canada from November to February. Lots of stuff covered including food, alcoholic beverages, clothes, toys, books video games etc. This jump in inflation for those items was expected. The others could be that Canadians are not buying US goods which are cheaper. We see that in the stores now where groceries originating from the US are not selling but those from other countries are. It appears that people are willing to take a hit financially in order to protest the tariffs and the suggestions of the US taking over the country. Visits from Canada to the US are down in February by around half a million. Until then it was growing every month. It appears to be a real national movement
Read the discussion about the impact of the end of the GST holiday in the article. So quoted from my own article here:
“To get a more accurate picture of the situation, we have been focusing on inflation measures excluding indirect taxes for some months now. In February, the CPI excluding indirect taxes increased by a whopping 0.4% and the annual rate is now 2.9%, which is close to the upper limit of the Bank of Canada’s target range.
On an annualized three-month basis, this measure stands at 5.1%, its highest rate since September 2023.”
….
“Visits from Canada to the US are down in February by around half a million.”
If Canadians spend this money traveling in Canada, instead of in the US, that would give the Canadian economy a nice boost.
> Visits from Canada to the US are down in February by around half a million.
Half a million? Wow that’s a lot out of 750,000. Or is it out of 100 million?
no one in america cares about canadians’ reaction to the tariffs, the same types they impose on americans, as much as canadians think they care.
let canada pay its fair share of north america’s defense costs. oh, and what about the fact that america has been subsidizing canada’s rx drugs for years.
The Bank of Canada always cuts interest rates no matter what.
From Feb 2022 through July 2023, the BOC HIKED by 475 basis points, to 5.0%. So it does not “always cut” interest rates. It also hikes.
In 2024, Canada produced more than 200 tonnes of gold, making it the fourth-largest gold producer globally, with Ontario and Quebec accounting for 70% of the country’s total gold output. Gold is Canada’s most valuable mined commodity, with a production value of $15.1 billion. The increases in gold prices now are contributing to Canadian inflation.
There’s the tragic and infuriating story of Victoria Gold; a junior start up riddled with bad decisions, serious lack of accountability, and a tight budget. The mine will never, ever re-open again. I think they’ll be studying it for some years to come. A lesson in how not to operate a mine site.
Increasing gold prices help balance the trade deficit and support Canada’s ability to finance itself. Companies like Agnico Eagle (AEM) are world leaders in terms of production and profitability. Canada has always been considered a safe jurisdiction to mine in. Margins on gold are over 120% for most gold producers and well above Nvidia’s forward 70%. Surprising that the gold stocks share prices have not remotely kept up with margin growth.
Centerra gold is arguably, well… the gold standard for their level professionalism and just overall operational structure in mount milligan. Unfortunately, they’re more the exception.
Hot Jumbalaya! The inflation is coming in hotter than a jalapeño in Acapulco. Run for the hills. Run for the hills! I mean, run for the BANKS while your money is still a little better than toilet paper.
Canada is rough… Underpacing USA productivity growth for decades, and outpacing USA inflation. That’s how a country gets poorer in real-time.
Also:
“Canadian mortgage borrowers waiting on the central bank may be disappointed by its latest move. The Bank of Canada (BoC) cut its overnight rate by 0.25 points to 2.75% on Tuesday. Many professionals applauded the decision, believing it would improve mortgage affordability. Unfortunately, that may not be the case, as the decision boosted inflation expectations and sent bond yields higher. This ultimately applies upward pressure on popular fixed-rate products, raising the floor of borrowing costs. “
Thanks Wolf.
As CDN painful to read. It’s worse than that too.
Inflation was aided by, the BOC who cut rates since the fall, which dropped the cdn$ by ~8%. (As you know, that will increase price of imports.)
I wonder too, if prices increased in anticipation of tariffs (cdn side) and carbon tax increase in April. If I had a business, likely what I would do.
CPI excludes tax increases. Fir example property taxes are on a tear; ~25% cummulative.
Canada GDP was reported as 0.5%, lowest in the west. So its worse than inflation. Its stagflation.
Canada on all metrics, but one, should be doing okay. But for leadership of the Liberal party Trudeau, who for the last 10 years with huge DEI wokist domestic and international spending, and war mongering, has trashed the CDN economy. And added to the cost of government and to our national debt. Trudeau Liberal party even declined additional export opportunities. And to hide his economic failure, he grew government by 36% and ran largest deficits ever.
Trudeau has been deposed. But the moronic Liberal party ran 3 or 4 party selected candidates whoes WEF agenda says the solution is to add even more taxes.
Nice country. Lots if potential. Run by lunatics. We really need recall for incompetence, jail for corruption, and full on forensic manditory audits too.
Try not to encourage housing bubbles (or sit idly by as they form). From 2019 to 2023, I believe public sector jobs increased by 13.5% and private sector was 3.5% (rough estimates), obviously not sustainable over any extended time line. Carney has already come with the tag line “spend less, invest more” (pertaining to public spending) and there’s rumblings of trying to attract foreign investment to fund rental housing – likely with favorable conditions (if true). Could tell you a (true) story of a bailout involving the infrastructure bank of Canada – unfortunately there’s a slight indirect connection to my employment- but if things change in the future I’ll be sure to share.
The same in the EU….
Canadian rupee just doesn’t buy as much as it used to.
I was wondering about this. Thanks Wolf. More confirmation that when central banks around the planet work together, inflation will be a global phenomena.
If the BoC cuts rates, it’s because of inflating the the housing market bubble.
The bureaucrats would rather help the real estate investors than give a measly $10 a month increase in public assistance and Old Age Security.