The monthly inflation surge was primarily driven by higher costs for recreation, education, and reading (+3.4%), clothing and footwear (+1.6%), and alcoholic beverages, tobacco, and recreational cannabis (+1.5%).

The end of the GST/HST break on February 15 also played a key role in driving up prices, according to Statistics Canada. The agency noted that the tax break’s expiry “contributed notable upward pressure to prices for eligible products,” including restaurant meals, certain retail goods, and other previously exempted items.

Weaker price growth in gasoline (+5.1% y/y, down from 8.6% in January) helped temper the overall acceleration in CPI. Shelter costs (+4.2% y/y) and transportation expenses (+3.0% y/y) also saw slower gains, rising just 0.2% and 0.3% month-over-month, respectively.

Mortgage interest costs rose 0.2% for the second consecutive month, slowing annual growth to 9% and marking the end of a 2.5-year stretch of double-digit increases.

On a month-to-month basis, the Consumer Price Index (CPI) rose 1.1%, while the seasonally adjusted CPI increased by 0.7%.

Core inflation measures closely watched by the Bank of Canada painted a similar picture. CPI excluding food and energy rose 2.9% year-over-year, with a seasonally adjusted monthly increase of 0.5%. The BoC’s preferred measures—CPI-trim and CPI-median—also climbed to 2.9% y/y, marking the highest level for CPI-median since October 2024.

“None of this is encouraging news for policymakers,” wrote BMO’s Benjamin Reitzes in a note.

“The trends over the past three months suggest that core inflation is set to head a bit higher in the months ahead, with the three-month annualized pace running slightly above 3% in February,” added TD Economics’ Leslie Preston.

CPI data puts the BoC in a “difficult place”

This morning’s inflation data puts the Bank of Canada in a tough spot as it weighs the decision to cut rates.

“Canadians’ inflation expectations have risen, but the hit to demand from uncertainty and the tariffs themselves are already weighing on [economic activity],” notes TD’s Preston. “How tariffs play out remains highly uncertain.”

BMO’s Reitzes adds that the most recent data will “reinforce the BoC’s cautious tone on easing to mitigate the impact of tariffs.” But, he adds, the end of the carbon tax and continuing reversal of the GST/HST holiday could muddy the waters. 

“There’s plenty of noise still to come on inflation, complicating policymakers’ job,” he wrote. “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.”

Preston agrees that tariff uncertainty remains a concern, noting that markets have already responded to this morning’s CPI data, with Canadian bond yields rising 6 basis points after the CPI release.

“In this world, we expect the Bank of Canada to provide some further cushion in the form of two more 25-basis-point rate cuts at its next two rate announcements,” she wrote. “Markets have lowered their odds of a cut on April 16 slightly in the wake of today’s inflation numbers, but we will know a lot more about the path of tariffs by the time the decision rolls around.”

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Last modified: March 19, 2025