Canada’s annual inflation slowed in February, signalling that price pressures seem contained for now. However, part of the reduction in inflation was due to temporary base effects. Moreover, the recent steep rise in crude oil prices is not expected to show up in the data until next month. As the war by the US and Israel on Iran enters its third week, developments in the Strait of Hormuz will be critical. Major central bank interest rate announcements will also be in focus.

• Canada’s annual inflation rate in February slowed to 1.8% from 1.9% in the previous month. The annual inflation rate was the lowest since July 2025.
• The base effect from last year’s GST tax holiday impacted the inflation data. In February last year, prices rose steeply after the holiday ended. As a result, food inflation slowed to 5.3% in February versus 7.3% in the previous month.
• Core inflation, fell to 2.3% in February from January. It was the fifth month of declines in the Bank of Canada (BoC)’s preferred measure.
• Gas prices fell by 14% in February compared to the same period last year. The removal of the carbon tax in April 2025 contributed to the decline.
• Oil price shock not yet factored into the data. Since the conflict in the Middle East began, crude oil prices have fluctuated to over $100 a barrel. More volatility is expected until stable oil flow through the Strait of Hormuz resumes.

Tensions in the Middle East, especially around safe passage for critical cargo through the Strait of Hormuz, will be on central bank policymakers’ minds as they make interest rate announcements and provide macroeconomic updates this week. Although the latest inflation readings point to a cooling of inflation, the potential of higher energy costs raises uncertainty due to the complex oil price environment. BoC Governor Tiff Macklem has said that interest rates are at about the right level to keep inflation in check, but adjustments may be needed if inflation expectations rise.

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