Canada's inflation rate slowed to 2.8% in February, beating expectations for 2nd month in a row

Canada's annual inflation rate cooled to 2.8 per cent in February, with the cost of cellular services, groceries and internet access services contributing to slower growth, Statistics Canada said Tuesday.

Economists had largely expected the rate to rise to 3.1 per cent and undo some of the year's early progress.

Rent and mortgage interest costs continued to be primary drivers of the inflation rate, the agency said. Meanwhile, gas prices ticked up 0.8 per cent in February year-over-year after a four per cent decline in January.

Canadians who signed up for a new cell phone plan in February paid 26.5 per cent less than they would have at the same time last year — this was due to lower prices for new plans and increases in data allowances.

The Bank of Canada's preferred measure of core inflation, which strips out volatile sectors like food and energy, also fell below economists' expectations last month — an encouraging sign for the central bank, wrote CIBC economist Katherine Judge.

"This is the second month in a row in which inflation has looked softer than expected, and with ample evidence that higher interest rates are working to tame inflation, the Bank of Canada is on track to start cutting interest rates in June," Judge wrote.

The central bank maintained during its interest rate policy announcement earlier this month that it's too soon to talk about rate cuts. That could change during its next meeting, wrote Douglas Porter, chief economist with Bank of Montreal.

"At a minimum for April, look for the Bank to open the door to rate cuts. BMO continues to call for a June start to rate cuts, and this report certainly reinforces our conviction."

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For the first time in more than two years, grocery prices increased at a slower pace than the headline inflation rate, StatsCan said.

This was thanks to what economists call a base-year effect (the impact of comparing prices in a given month to the same month a year earlier).

But slower price growth doesn't mean that food isn't getting more expensive. While the inflation rate for fresh fruit (-2.6 per cent), processed meat (-0.6 per cent) and fish (-1.3 per cent) all declined, grocery prices are still rising.