Dropping gas prices help cool inflation

But with cost of oil rising, economists say rate will be ‘marching to a different drum’

Lower prices at the pump helped cool Canada’s annual inflation rate to 1.4 per cent last month, down from 2 per cent in January, while offsetting increases in food prices.

Gasoline prices dropped a whopping 13.1 per cent year-over-year and 6.9 per cent from January, Statistics Canada reported Friday.

Excluding gasoline, the annual inflation rate would have been 1.9 per cent in February.

The core inflation rate, which also excludes fuel and some other volatile items, was 1.9 per cent.

Statistics Canada says food was a major inflationary factor in February, as it has been for several months. Consumers paid 3.9 per cent more for food last month compared with February 2015.

But there were signs that some gro- cery prices had levelled off or softened.

Meat prices showed their smallest gain since January 2014, rising by 1.6 per cent from a year earlier. The meat index also declined by 0.1 per cent between January and February.

Similarly, the fresh vegetable index was up 17.2 per cent for the year, but down 0.1 per cent from the previous month.

Other food components, including fresh fruit and dairy products, were up both on a yearly and monthly basis.

Several analysts noted that the February inflation report gave the Bank of Canada little reason to change its key interest rate from 0.5 per cent, given that core inflation was close to the central bank’s ideal target of 2per cent.

“But with crude oil now higher, headline inflation will be marching to a different drum and likely head higher over the course of the year,” CIBC economist Royce Mendes wrote in a commentary.

Future contracts for North Amer- ican benchmark crude recently rose this week above $40 (U.S.) a barrel and the Canadian dollar traded above 77 cents on Thursday for the first time in months.

“The recent pickup in oil prices and attendant Canadian dollar appreciation, if sustained, will have opposing impacts on inflation,” RBC economist Josh Nye wrote.

A stronger dollar will limit inflationary pressures from imports while gasoline will be more of a contributor to inflation.

In total, six of the eight major components of the consumer price index were up from a year earlier. The transportation index that includes gasoline was down 0.5 from February 2015 and down 1.1 per cent from January.

The clothing and footwear index was down 1.3 per cent from a year earlier but up 1.4 per cent from January.

Economists had expected Canada’s overall inflation rate to be1.5 per cent and core inflation to be 2per cent last month.