Jimmy Jean, chief economist and strategist at Desjardins, joins BNN Bloomberg to discuss February’s CPI data. <\/p>\n
Economists warn that the spike in gas prices, triggered by the ongoing war in Iran, threatens to reverse recent progress in Canada\u2019s inflation rate.<\/p>\n
This comes after the release of annual inflation data by Statistics Canada<\/a> on Monday, which shows Canada\u2019s inflation rate slowed to 1.8 per cent in February, dipping below the Bank of Canada\u2019s two per cent target as grocery prices eased.<\/p>\n The consumer price index rose 1.8 per cent <\/a>year-over-year in February, down from 2.3 per cent in January.<\/p>\n \u201cIt\u2019s a little bit bittersweet in the sense that you do see that improvement in inflation and underlying inflation in particular, but at the same time, you know what\u2019s coming ahead,\u201d said Jimmy Jean, chief economist and strategist at Desjardins.<\/p>\n Oil prices have surged, with Brent crude oil prices hovering above US$100 a barrel on Monday, driven by supply risks in the Middle East, as the Strait of Hormuz remains closed<\/a>.<\/p>\n \u201cThose are going to be reflected in upcoming numbers,\u201d said Jean.<\/p>\n Despite the improving inflation data, the outlook could change quickly as higher energy prices ripple through the economy, says Randall Bartlett, deputy chief economist at Desjardins.<\/p>\n \u201cThis is really a snapshot of where the Canadian economy would be without this external shock to the outlook,\u201d said Bartlett.<\/p>\n He said the conflict in the Middle East could affect inflation through several channels beyond gasoline prices.<\/p>\n \u201cYou have to layer on the Iran conflict, in the oil price shock that we\u2019ve seen, the rise in gasoline prices<\/a>, transportation costs, supply chain disruptions,\u201d Bartlett said.<\/p>\n \u201cAnd so that\u2019s really thrown a lot of uncertainty into the outlook for the economy, for inflation and for monetary policy.\u201d<\/p>\n Jean added that higher energy costs could eventually hit food prices and global shipping costs.<\/p>\n \u201cIf we recall in the Ukraine episode, we saw a big run-up in food prices<\/a>, and part of that was due to gas prices globally shooting higher,\u201d he said.<\/p>\n \u201cYou\u2019re seeing all those insurance contracts going higher, so shipping is going to be more expensive, and that could be transmitted through end consumer prices.\u201d<\/p>\n Progress made on food and housing<\/p>\n Part of the improvement in Canada\u2019s inflation numbers was caused from a two month temporary GST break introduced by the federal government in late 2024, which lowered tax on certain gifts and dining until mid-February.<\/p>\n However, the numbers last February show some improvement came from the easing of grocery prices, says Jean. <\/p>\n He added housing-related inflation is also beginning to cool, falling below four per cent for the first time since 2022, back to pre-pandemic levels. <\/p>\n \u201cThat\u2019s the impact of policies, especially as it relates to immigration and to alleviate those pressures. And it shows that those policies have been working,\u201d said Jean.<\/p>\n Bank of Canada faces conflicting signals<\/p>\n It\u2019s going to be tricky for the Bank of Canada to take a firm stance on its rate decision on Wednesday<\/a>, says Jean. <\/p>\n