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Canada's Inflation Surges to 2.6% Following End of Tax Holiday

The unexpected rise, driven by broad-based price pressures, complicates the Bank of Canada's monetary policy decisions.

People shop at a grocery store in Toronto, Ontario, Canada November 22, 2022.  REUTERS/Carlos Osorio/File Photo
People pay for their items at a grocery store in Toronto, Ontario, Canada November 22, 2022.  REUTERS/Carlos Osorio/File Photo
A person carries shopping bags along a street in Montreal, Saturday, December 14, 2024. February's inflation release from Statistics Canada will reveal the impact of an unwinding of the two-month federal sales tax break. THE CANADIAN PRESS/Graham Hughes
OTTAWA — Tiff Macklem, governor of the Bank of Canada, spoke with the Globe and Mail Wednesday, March 12, 2025, after the announcement for the cut to its key interest rate by a quarter-percentage-point.

Photo by Ashley Fraser, Globe and Mail

Overview

  • February's inflation rate of 2.6% marks the first time in seven months it has exceeded the Bank of Canada's 2% midpoint target.
  • The end of a temporary GST/HST holiday significantly contributed to the increase, with inflation estimated to have been 3% without the tax break.
  • Core inflation measures, CPI-median and CPI-trim, rose to 2.9% in February, reflecting widespread price increases across key categories like food, clothing, and shelter.
  • Monthly inflation saw a sharp rise to 1.1% in February from 0.1% in January, surpassing analyst predictions of 0.6%.
  • Rising inflation pressures have led markets to anticipate a pause in interest rate cuts by the Bank of Canada in April, as policymakers face challenges balancing economic uncertainties and inflation control.