Canada's inflation rate rises to 2.6% in February

Canada’s annual inflation rate rose to 2.6 percent in February 2025. This increase comes after a smaller rise to 1.9 percent in January, according to new data from Statistics Canada. On a monthly basis, the Consumer Price Index rose 1.1 percent in February. Analysts had expected a rise in inflation due to the end of some temporary tax breaks on goods. However, the increase was larger than anticipated. Key measures of inflation that exclude tax impacts also saw a rise, which may not reflect the upcoming effects of tariffs. CIBC economist Katherine Judge warned that inflation could exceed 3 percent in the coming months due to these tariffs. The new inflation data puts pressure on the Bank of Canada (BoC). TD Bank economist Leslie Preston noted that Canadians’ inflation expectations are rising, while tariffs are slowing demand. This creates a complicated situation for the central bank as they consider their next steps. Market expectations suggest there is a 59 percent chance that the BoC will pause interest rate cuts in their next meeting. Some economists predict additional interest rate cuts over the coming months, while others believe the BoC might need to change its strategy. BMO's Benjamin Reitzes pointed out that several factors could complicate the BoC's decision-making. For instance, a pending end to the carbon tax is expected to sharply reduce inflation in April. However, inflation could rise again in March due to the effects of the ending tax holiday. Statistics Canada reported that the end of the tax break led to noticeable price increases for some goods, which make up about 10 percent of the CPI basket.