Canada inflation slows to 1.8% as tax break effects fade

Investing.com -- Canada’s headline inflation slowed more than anticipated in February, as the expiration of a prior tax holiday created a significant drag on year-over-year price growth. The Consumer Price Index (CPI) rose 1.8% on a year-over-year basis, a sharp deceleration from the 2.3% increase recorded in January.

The retreat in the annual rate was largely technical, driven by the "base-year effect" of the 2025 GST/HST break ending. Statistics Canada noted that "a base-year effect refers to the impact that price movements from 12 months earlier have on the current month’s headline consumer inflation."

This deceleration surpassed the expectations of the market and institutional analysts. Economists polled by Reuters had expected inflation to fall to 1.9% year-over-year ⁠in February, representing a rare downside surprise in recent months.

The end of the tax holiday particularly impacted the service sector, where restaurant and hospitality prices saw a mechanical softening in their annual climb. Statistics Canada reported that "most notably, this affected prices for food purchased from restaurants," even as the sector continues to face elevated costs.

Beyond tax-related volatility, broader deflationary pressures emerged from the energy and housing sectors to keep the headline figure suppressed. Significant downward pressure was felt from gasoline and natural gas indexes, which fell 14.2% and 17.1% respectively, compared to the previous year.

While the headline figure looks cooled, consumers continue to feel the cumulative weight of the past five years of price hikes. Although growth in grocery prices slowed in February, "they have risen 30.1% since February 2021," highlighting the persistent cost-of-living challenge facing Canadian households.

You May Also Be Interested In

• OpenAI: after the Hugging Face incident, we committed to conducting a much broader review of actions taken by our models
• Northrop Grumman wins $143M in new U.S. defense contracts
• Boeing and Bell Boeing receive defense contracts totaling $56.4M