Return to 2% inflation rate could be a bumpy one. Here’s why

Economists say inflation likely flared up again in February amid higher gasoline prices, reinforcing the expectation that the journey back to 2% inflation will be a bumpy one.

Economists say inflation likely flared up again in February amid higher gasoline prices, reinforcing the expectation that the journey back to two per cent inflation will be a bumpy one.

Statistics Canada is set to release its February consumer price index report on Tuesday. The consensus expectation among forecasters is that prices rose 3.1 per cent from a year ago.

That would reverse some of the progress made in January, when the annual inflation rate slowed to 2.9 per cent.

“We’re looking for inflation to re-accelerate as a result of higher energy prices during the month. It looks like for the next few months, inflation will probably be bouncing around the three per cent range,” said Royce Mendes, managing director and head of macro strategy at Desjardins.

A rise in inflation will slightly complicate things for the Bank of Canada, which is widely expected to begin cutting its policy interest rate in the coming months.

But Mendes says what will be more important to watch on Tuesday are measures of underlying price pressures, which help economists gauge where inflation is headed.

“The real question is what’s going on underneath the surface,” Mendes said.

At the Bank of Canada’s interest rate decision earlier this month, governor Tiff Macklem noted that almost half of the consumer price index components are currently rising at a pace above three per cent. In more normal inflationary times, only about a quarter of CPI components will rise that quickly.