Canada’s core Consumer Price Index rose by 0.2% month on month in February.
This measures the monthly change in core consumer inflation in Canada, excluding certain volatile items.
Core Inflation Remains Sticky
We’ve seen the February core CPI come in at 0.2%, which annualizes to a sticky 2.4%. This figure reinforces the idea that the Bank of Canada will remain cautious and is unlikely to cut rates at its next meeting in April. The path back to the 2% inflation target is proving to be slower than many anticipated.
This data challenges the market’s current pricing, where Overnight Index Swaps still suggest a more than 40% chance of a rate cut by June. We believe this makes selling futures contracts tied to the CORRA rate, essentially betting against imminent rate cuts, an attractive strategy. Looking back at 2025, we recall how similar persistent inflation data delayed the Bank of Canada’s pivot for two consecutive quarters.
A more hawkish central bank should provide a tailwind for the Canadian dollar, especially as recent jobs data also shows continued economic strength with unemployment holding at 5.5%. We see potential for the loonie to strengthen against the U.S. dollar as the interest rate differential narrative shifts. Options strategies that benefit from a move away from the current 1.35 level towards 1.33 should be considered.
For equities, the prospect of borrowing costs remaining elevated could act as a headwind for the S&P/TSX 60 index. Rate-sensitive sectors like real estate and utilities will likely face the most pressure from this “higher for longer” environment. We think protective put options on the index offer a reasonable hedge against a potential market downturn in the coming weeks.
