Statistics Canada says the annual rate of inflation dipped below two per cent in February, as the end of last year’s federal “tax holiday” helped take some steam out of year-over-year price comparisons.
The agency said Monday that February’s inflation reading came in at 1.8 per cent year-over-year, half a percentage point lower than January’s figures and just under economists’ expectations for the month.
Tax holiday effect
The main factor driving the headline number lower was the end of last year’s tax holiday, which removed the federal sales tax from a variety of household staples, gifts, and dining out for a two-month period ending mid-February 2025.
Lower prices from the tax break were only in effect for half of February last year, compared with all of January, making the annual inflation calculations somewhat better last month.
Restaurant meals benefited most as the tax relief started to fall out of the inflation calculations. Annual inflation in the category cooled to 7.8 per cent in February from 12.3 per cent in January.
Toys, games and hobby supplies also saw some inflation relief in the waning days of the tax holiday, StatCan said.
Some grocery staples were also included in the temporary tax break, but StatCan said there was otherwise modest but “broad-based” inflation relief at the grocery store in February.
Inflation for food purchased from stores cooled to 4.1 per cent in February from 4.8 per cent the previous month. Fresh and frozen beef – long a pain point at the grocery store – saw its annual price hike cool to 13.9 per cent last month, nearly five percentage points lower than in January.
A month-over-month decline in cellular service prices also helped lower the annual inflation rate in February.
Fuel pries creep higher
StatCan said the cost of gasoline, meanwhile, started to creep higher at the end of the month in the lead up to the war in the Middle East, which has pushed prices at the pump sharply higher in recent weeks.
TD senior economist Leslie Preston said in a note to clients Monday that she expects the headline inflation figure will rise to around three per cent in the months ahead, thanks to the oil price shock.
Bank of Canada watching inflation closely
The Bank of Canada will carefully analyze the latest price figures ahead of its interest rate decision on Wednesday.
The February inflation report comes after a weak jobs report from StatCan on Friday showed a loss of 84,000 jobs last month, driving the unemployment rate up to 6.7 per cent.
CIBC senior economist Katherine Judge said Monday’s “tame report will be welcomed by policymakers ahead of the energy price shock, as it shows that labour market slack is keeping a lid on core prices.”
February’s inflation data showed further signs of easing in the Bank of Canada’s preferred core measures of inflation that tend to strip out more volatile inputs such as energy and food prices.
Preston said she expects the Middle East war will have less of an effect on these measures of underlying inflation, which should keep close to the central bank’s two per cent target through much of 2026.
The Bank of Canada is widely expected to remain on pause this week, Preston said, but she added that economists will be listening carefully to how the central bank gauges the impact of the oil shock on the economy.
This report by The Canadian Press was first published March 16, 2026.