Canadian economic data released ahead of the February Consumer Price Index (CPI) report showed a weaker domestic backdrop, with both headline and core inflation expected to slow and employment figures surprising sharply to the downside. According to Brown Brothers Harriman’s Elias Haddad, the USD/CAD slipped below 1.3700 as consensus forecasts anticipated headline CPI to drop to 1.9% year-on-year from 2.3% in January, driven by favorable base effects. Core CPI (average of trim and median) was projected at 2.35% year-on-year versus 2.45% in January, with the Bank of Canada (BOC) projecting headline and core inflation to average 2.0% and 2.5% year-on-year over Q1, respectively [1].
TD Securities analysts echoed these expectations, forecasting headline CPI to slow by 0.4 percentage points to 1.9% year-on-year in February, with prices rising 0.7% month-on-month, supported by higher fuel prices and seasonal factors. Softer core inflation measures were expected, with CPI-trim and CPI-median forecast to slow to 2.3% and 2.4%, respectively, which would leave both headline and core CPI tracking below BOC projections from the January Monetary Policy Report [2].
Both sources highlighted the sharp deterioration in Canada’s labor market, with job losses in February totaling -83.9k according to BBH and 84k according to TD Securities, following declines of -24.8k and 25k in January, respectively. The unemployment rate rose by 0.2 percentage points to 6.7% [1][2]. This weakening labor market, concentrated in full-time positions, reinforces a softer domestic economic backdrop heading into the March BOC meeting [1][2].
Despite the softer inflation and jobs data, analysts from both BBH and TD Securities noted that the stable inflation backdrop gives the BOC some room to look through the oil price shock and refrain from raising rates, even as global factors—particularly the Iranian conflict-driven oil price surge—dominate near-term policy considerations. TD Securities emphasized that the softer inflation trajectory matters less for the immediate policy outlook given the upside risks to inflation from higher crude oil prices, and suggested a bias toward selling Canada versus the US in 10-year bonds as a good entry opportunity [2].
CONCLUSION
Canadian inflation and jobs data for February undershot expectations, with both headline and core CPI tracking below Bank of Canada projections and employment figures showing significant weakness. However, the ongoing oil price surge driven by geopolitical tensions is expected to outweigh domestic softness in near-term policy decisions. Analysts see limited impact on BOC rate deliberations and suggest opportunities in selling Canadian assets versus US counterparts.