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Economists expect inflation rate ticked up above 3% last month amid higher gas prices

Economic experts are anticipating a surge in inflation for February, largely attributed to the notable increase in gasoline prices. This surge is expected to hinder the smooth progression towards achieving a stable inflation rate of two percent.

Statistics Canada is scheduled to unveil its February consumer price index report on Tuesday, with forecasts indicating a 3.1 percent rise in prices compared to the previous year. This projection marks a reversal from January, where the annual inflation rate experienced a slight slowdown to 2.9 percent.

Royce Mendes, the managing director and head of macro strategy at Desjardins, highlighted the anticipated resurgence in inflation due to elevated energy prices throughout the month. Mendes foresees inflation hovering around the three percent mark for the foreseeable future.

The potential rise in inflation poses a slight complication for the Bank of Canada, which is on the brink of initiating cuts to its policy interest rate in the coming months.

Mendes emphasized the importance of scrutinizing underlying price pressures to accurately gauge the trajectory of inflation. He stressed that understanding the dynamics beneath the surface is crucial for economists.

Governor Tiff Macklem, during the recent interest rate decision of the Bank of Canada, drew attention to the fact that nearly half of the components of the consumer price index are experiencing inflation rates exceeding three percent. This departure from the norm indicates heightened inflationary pressures.

Macklem reiterated the central bank's cautious approach, emphasizing the need for clear evidence indicating a trajectory towards the two percent inflation target before considering any premature interest rate cuts.

BMO's chief economist, Douglas Porter, underscored the necessity for prudence in monetary policy decisions, particularly in light of the volatile nature of energy prices, which significantly influence overall inflation trends.

The upcoming report on Tuesday will serve as the final inflation reading before the Bank of Canada's April interest rate announcement. While no immediate changes to the policy rate are anticipated next month, there is growing speculation among forecasters regarding a potential rate adjustment in June.

Porter stressed the significance of the April meeting as a precursor to future monetary policy decisions, considering the evolving economic landscape and the government's impending budget presentation.

With several months of economic data yet to be evaluated, analysts caution against premature conclusions regarding future policy adjustments. The Bank of Canada remains vigilant, taking into account various factors influencing inflation dynamics before making any definitive decisions.

In summary, the anticipated inflation surge underscores the complexities faced by policymakers in navigating economic uncertainties amidst fluctuating energy prices and evolving market conditions.



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