BMO Says Canada CPI for February Represents "Calm" Before The Oil Storm

11:17 AM EDT, 03/16/2026 (MT Newswires) -- Canada's consumer price index rose 0.5% month over month in February, "mild" enough to chop the headline inflation rate five ticks to 1.8% year over from 2.3%, said Bank of Montreal after Monday's CPI data.

However, with the conflict in Iran beginning on the last day of February, this CPI report has a distinct antebellum tinge, gasoline prices were still down 14% year over year last month, noted the bank. Those pump prices are poised to "rocket" as much as 15% month over month in the release for March and will be well above year-ago levels, driving headline inflation towards 3% in the coming months.

However, returning the focus to where price pressures were before the Iran war reveals that underlying inflation was indeed ebbing nicely early this year, stated BMO.

Almost all major measures of core moderated, in most cases, even more than expected. The Bank of Canada should be considering cutting rates, not raising them, in this economic backdrop, according to BMO.

Some of the main sources of relief in the month included a pullback in grocery price inflation to 4.0% from 4.8%. While the latest month was somewhat distorted by the end of the GST holiday in the middle of February 2025, there were signs of some mild relief in food products unaffected by the GST, meat for example. Cellular services, which have been gyrating wildly in recent months, pulled back 2.8% month over month, which slashed the yearly rate again to a moderate 1.5% pace. It peaked at nearly 15% in December.

Meantime, the grinding fall in home prices is weighing on shelter costs. The broad "owned accommodation" measure has eased to just 0.8% year over year, the coolest pace since 2013. Even rents have finally begun to reflect the weakness in market rents, slowing to 3.8% year over year, less than half the pace of just two years ago.

Inflation was a tad tamer than even BMO's below-consensus forecast in February. While this release has a stale feel, since gasoline prices have since surged more than 15% just since the end of last month, it clearly shows that underlying inflation was decelerating notably in early 2026.

With most measures of core inflation close to the BoC's 2% target, policymakers can more readily "look through" the oil-driven spike that is surely coming to headline inflation in the next few months. That is particularly the case with employment weakening even before the war and the uncertain fate of the USMCA trade review still looming, added the bank.

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