February 2025 CPI: Deals are over for Canadians as inflation takes a turn, risking Bank of Canada’s next move. 

Canadians won’t find much relief in today’s inflation jump, especially with the GST holiday ending and tariff impacts still looming. The increase was broad-based, with core inflation measures running close to 3%—the highest we’ve seen in a while. The real concern is what happens next, with mixed signals from tariffs and the removal of the carbon tax. The economy is likely to slow in the coming months, and that could keep price pressures in check. The Bank of Canada will see through this spike, but whether they cut rates will depend on how the economic data shakes out.

Headlines

• February headline inflation reached 2.6% year-over-year, surpassing the consensus estimate of 2.2%. Monthly seasonally adjusted prices increased by 0.7%. 
• Excluding the GST holiday effect, inflation would have hit 3%, the highest since 2023, and up from January’s 2.7%. 
• Core inflation measures (Trim and Median) rose to 2.9%. Short-run core inflation (3-month annualized) climbed to 3.3%. 

CPI Breakdown

• Shelter: Inflation moderated slightly to 4.2%, with rent increasing by 5.5% and mortgage interest costs easing to 9%. 
• Food: Remained the main inflation driver, with grocery store prices climbing 2.8%, their highest in a year, despite lower restaurant prices. 
• Energy: Provided some inflation relief, with gasoline price increases slowing to 6%, down from 10% the previous month. 
• Services: Gained momentum, growing 3.6%, led by a notable 12.4% jump in travel services. 
• Goods: Continued to rise, up 1.5%, driven by higher prices in durable and semi-durable goods. Clothing and footwear prices rebounded by 1.4%, while alcohol, tobacco, and cannabis rose by 0.6%. 

Provincial Trends

Inflation increased in every province, with Ontario and New Brunswick experiencing the most significant gains.

Implications

• Inflation exceeded the Bank of Canada’s January forecast of 2.1%. Approximately 57% of the CPI basket continues to experience inflation at or below 2%. 
• The conclusion of the GST holiday on February 15 impacted 10% of the CPI basket, partially influencing February’s data. 
• Prime Minister Mark Carney’s removal of the consumer carbon tax could potentially reduce inflation by up to one percentage point in 2025, creating further uncertainty in upcoming inflation reports. 
• Financial markets have withdrawn expectations of a 25-basis-point rate cut at the Bank of Canada’s April 16 meeting. The central bank’s upcoming Monetary Policy Report will clarify how the carbon tax removal might influence inflation forecasts. Although our outlook anticipates interest rates returning to neutral (~2%) by summer 2025, the Bank is expected to maintain rates at its next meeting barring substantial deterioration in economic data or significant tariff escalation. 

Charts and tables

Sources: Statistics Canada; Canadian Chamber of Commerce Business Data Lab