Ottawa – With temporary federal tax breaks, economists expect inflation to accelerate annually in February.
Statistics Canada is scheduled to release inflation data for February on Tuesday.
Reuters predicted annual inflation to rise to 2.2% last month, up from 1.9% in January.
From December 14 to February 15, a range of household staples and universal gifts as well as alcohol and restaurant bills are exempt from federal sales tax.
Benjamin Reitzes, managing director and macro strategist at BMO Canada Rates, said the tax holiday will have a visionary impact on inflation.
“This helps to drop in December and January, and now, this will be the opposite in February and March,” he said in an interview.
BMO and TD predict inflation will accelerate to 2.2% in February.
Royal Bank of Canada expects economists Nathan Janzen and Carrie Freestone in a report that the end of the tax holiday could boost price growth at a faster rate of 2.5%.
Although the Canadian economy is being established by 2025, the authors said: “Worry about the risk of international trade will have a significant impact on the economy, which makes recent growth data even stronger.” They expect Canadian banks to lower interest rates further.
February inflation data will not reflect the direct impact of the tariff war between Canada and the United States, which began in early March.
Ongoing tariffs could risk focus inflation, TD economist Maria Solovieva wrote in a report.
“This limits the extent to which BOC can lower interest rates to support demand,” she wrote.
Reitzes said the tariff threat could emerge through the Canadian flag in the inflation data, which has suffered a lot since U.S. President Donald Trump’s re-election.
He warned that the weaker Loonie will continue to raise prices of goods imported from the U.S. in February, including fresh fruits and vegetables grown south of the border in winter.
Reitzes also said he hopes there will be a small problem among the core inflation indicators that Canadian banks are closely watching. These measures deprive consumer price indexes, such as gasoline and food, to give central banks a clearer understanding of potential inflation.
Reitzes said signs of “stubbornness” in core inflation are unlikely to disappear in the coming months. But he added that central banks are temporarily more concerned about the “breadth” of inflation, which is consistent with periods of price stability.
Bank of Canada cut interest rates for the seventh consecutive time last week and issued an imminent warning about the imminent imminent Canadian economy and the sensation and inflation rate could surge in the Canadian economy due to the trade war and related uncertainties.
The next decision of the central bank is scheduled for April 16.
Reitzes said that a rise or fall in inflation data in February would have “no big impact” in the decisions made by Canadian banks.
He said that if the tariff dispute suddenly ends, recent inflation data will provide more information on future interest rate decisions. But for now, the trade war is the biggest factor in determining the path to inflation in the coming years.
Reitzes said Canadian banks will continue to use tax cuts in the near term to deal with concerns about a downturn, but it will also try to put inflation in parcels to the extent of trade disruptions, limiting its lows to the policy rate.
“It’s not a month. It’s over the next year or two, and that’s what they’re very focused on and avoiding any inflationary impact on this aspect,” he said.
This report by Canadian media was first released on March 16, 2025.
Craig Lord, Canadian media
