Canadian Inflation Cools, Energy Risks Loom

This marks a significant deceleration from January's 2.3%. Core inflation measures also softened, with traditional underlying inflation (excluding food and energy) easing to 2% and the BoC's preferred trimmed mean and weighted median averaging 2.3%, below its Q1 projection of 2.5%.

While this offers a temporary reprieve for consumers, analysts caution that this dip is likely fleeting. The escalating conflict in the Middle East is expected to drive up energy costs, potentially pushing headline inflation above 3% in the coming months.

Despite signs of a struggling labor market and broader economic weakness, the Bank of Canada is widely anticipated to hold interest rates steady at its upcoming decision and likely for the entirety of 2026, opting to monitor geopolitical developments and look through a temporary inflation acceleration.