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 year over year 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. This marked a 23 per cent increase in travel prices compared to the previous month.
The Bank of Canada’s preferred metrics of core inflation came in “hotter than expected” in February and are poised to keep rising in the months ahead, TD Bank senior economist Leslie Preston said in a note to clients on Tuesday.
Bank of Canada governor Tiff Macklem, who cut the…
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