Canadas annual inflation rate eases more than expected in Feb

OTTAWA (Reuters) -Canadas annual inflation rate cooled more than expected in February, as a drop in gas prices and softer growth in shelter costs helped bring the consumer price index to its lowest level since January 2022, Statistics Canada data showed on Tuesday.

The annual inflation rate dropped to 5.2% in February, beating economists forecast that it would fall to 5.4% from 5.9% in January. The annual rate deceleration from January to February was the largest in the headline CPI since April 2020, Statscan said.

Month-over-month, the consumer price index was up 0.4%, again lower than a forecast 0.5% gain.

The Bank of Canada forecasts inflation to slow to about 3% by the middle of 2023, and has said it could raise rates further if evidence accumulates suggesting inflation was not declining in line with expectation.

The bank left its key overnight interest rate on hold at the 15-year high of 4.50% earlier in March, and money markets largely expect it to keep rates unchanged at its next meeting in April.

Statscan cited a base effect, or comparison with last years strong result, that should persist through June. In February 2022, prices surged at a time of Russia-Ukraine tensions and supply chain disruptions, reaching a peak of 8.1% in June.

Energy prices fell 0.6% on the year in February, led by the first yearly decline in gasoline prices since January 2021, while shelter costs rose at a slower pace year-over-year for the third consecutive month, Statscan said.

Excluding food and energy, prices rose 4.8% compared with a rise of 4.9% in January.

The average of two of the Bank of Canadas core measures of underlying inflation, CPI-median and CPI-trim, came in at 4.9% compared with 5.1% in January.

The Canadian dollar was trading 0.1% lower at 1.3674 to the greenback, or 73.13 U.S. cents.

(Reporting by Ismail Shakil and Dale Smith in Ottawa and Fergal Smith in Toronto; Editing by Bernadette Baum)