Inflation easing, but pressure to help struggling Canadians

OTTAWA –

Canada’s inflation rate There may have been another downturn last month, but with many Canadians still struggling with the cost of living, the federal government is under pressure to provide more relief in the upcoming budget.

Statistics Canada is set to release its February consumer price index report on Tuesday, its most recent reading on inflation ahead of the federal government’s budget on March 28.

Desjardins and RBC both forecast the inflation rate to have eased to 5.4 percent last month, down from 5.9 percent in January.

But even as inflation eases, the federal government has signaled the budget will include affordability measures to help Canadians still challenged by the cost of living.

Jimmy Jean, chief economist at Desjardins, said all eyes are on Ottawa to balance affordability priorities with fiscal restraint.

“One of the things we’re certainly going to look at is what governments are offering to help with the cost of living, all with the caveat that it doesn’t add fuel to the (inflation) fire,” Jean said.

The Bank of Canada has been laser-focused on getting inflation back to its two percent target. An aggressive cycle of interest rate hikes over the past year is starting to slow the economy, forcing people and businesses to pull back on spending.

As the economy slows, economists worry that excessive or off-target measures by the federal government could work against the central bank’s efforts and force it to raise interest rates even higher.

Finance Minister Chrystia Freeland has repeatedly said she is committed to fiscal restraint and ensuring the federal government doesn’t make the Bank of Canada’s job more difficult.

But the Liberals also face pressure from the New Democrats to continue providing support to low-income Canadians who are hit hardest by inflation.

NDP Leader Jagmeet Singh said he wants to see the government extend a six-month GST rebate boost introduced last fall that temporarily doubled the amount people received.

At a news conference Wednesday, Prime Minister Justin Trudeau did not say whether his government would extend the rebate, but said the budget would include affordability measures.

“In our budget, we’re going to take measures that will directly help Canadians,” Trudeau said.

Inflation has become the country’s top political and economic concern after a sharp rise in prices last year, driven in part by Russia’s invasion of Ukraine and disrupted supply chains.

But since peaking at 8.1 percent last summer, Canada’s inflation rate has been steadily declining as global pressures to ease inflation and higher interest rates weigh on the economy.

Jean said last month’s drop in gas prices likely led to the overall inflation rate. Other components of the CPI, such as food prices, probably haven’t weakened much.

In January, food prices were a staggering 11.4 percent higher than a year ago.

RBC economist Kerry Freestone said businesses, including grocers, have been able to pass on the extra costs they face from suppliers to consumers. But grocery prices will still weaken as lower farm prices feed through the supply chain.

“It looks like it’s taking a while,” he said.

The Bank of Canada is currently holding its key interest rate at 4.5 percent, hoping that inflation will ease without the need for further rate hikes. It predicts inflation will ease to around three percent by the middle of the year.

“As long as inflation continues to come down as we expect … (the Bank of Canada) will probably stay on the sidelines,” Freestone said. For workers who haven’t seen their wages keep up with inflation, the rapid increase has occurred. was particularly punishing. But as inflation slows, the gap between the two is narrowing.

Average hourly wages rose 5.4 percent in February, in line with inflation forecasts.

The Bank of Canada said persistent wage growth will make it difficult to return to the two percent inflation target.

For workers, Jean said the gap between inflation and wage growth is good news, but doesn’t make up for lost time.

“We’re not talking about making up for the last two years of salary increases that haven’t kept up with inflation,” Jean said. “We’re just stopping the bleeding here.”