Inflation inches higher in February due to rising gasoline prices

Statistics Canada says the annual pace of inflation ticked slightly higher in February, largely driven by higher gasoline prices.

Rate in February was 1.1% but would have been 1% without gas-price hikes

Excluding gasoline price increases, the consumer price index rose one per cent in February. The year-over-year rate was 1.1 per cent for the month when factoring in rising gas prices, which were up five per cent year-over-year in February. (Christopher Katsarov/The Canadian Press)

Statistics Canada says the annual pace of inflation ticked slightly higher in February, largely driven by higher gasoline prices.

The consumer price index in February was up 1.1 per cent compared with a year earlier, and up from the year-over-year increase of 1.0 per cent recorded in January.

"Higher prices at the gas pumps were the driver in February and will continue to push inflation higher over the next several months," TD Economics said in a statement.

Gasoline prices have continued to rise through March, it said.

Financial data firm Refinitiv had said that the average economist estimate is for a year-over-year increase of 1.3 per cent.

Statistics Canada noted a five per cent year-over-year increase in gasoline prices, marking the third straight month of gains.

Excluding gasoline prices, the agency's consumer price index would have risen by one per cent in February.

The agency also said homeowner replacement costs, which are linked to the price of new homes, rose seven per cent between February 2020 and last month, marking the largest yearly increase since February 2007.

February's reading marked only the third month that the headline inflation reading was at or above one per cent during the pandemic.

The reading for last month also marked the highest the consumer price index has been since February 2020, when annual inflation clocked in at 2.2 per cent, just before the spread of COVID-19 began to affect the economy.

Core inflation should remain muted

TD Economics said Canada's core inflation is "likely to remain more muted" in the coming months, but should pick up steam as pandemic restrictions ease. Core inflation excludes things like food and energy, which were part of Statistics Canada's reporting of headline inflation on Wednesday.

The longer price weaknesses prevail, the longer Canada's central bank plans to keep its key interest rate at 0.25 per cent to help the economy get back on its feet.

Statistics Canada said the average of Canada's three measures for core inflation, which are considered better gauges of underlying price pressures and closely tracked by the Bank of Canada, was 1.73 per cent for February.

The Bank of Canada has warned that annual inflation readings in March and beyond may spike above its two-per-cent comfort zone, but only because the 12-month comparison will be with the worst of the pandemic-induced downturn.

The trend in higher prices at the pumps should push total annual inflation above two per cent this month, possibly hitting three per cent in April, said CIBC senior economist Royce Mendes. 

With files from CBC News