Canada's Inflation Surprise: Rate Hits 2.6% as Sales Tax Ends

Canada's inflation rate unexpectedly rose to 2.6% in February due to the end of a sales tax break, surpassing forecasts. This development places pressure on the Canadian economy amid U.S. tariffs. Rising inflation rates may lead the central bank to reconsider its interest rate policies.

Canada's inflation rate unexpectedly surged to 2.6% in February, fueled by the conclusion of a sales tax break mid-month, according to data released Tuesday. This uptick in consumer prices highlights the complexities facing Canada's economy amid impending U.S. tariffs.

The increase marks the first time in seven months that inflation has exceeded the 2% threshold, the midpoint of the Bank of Canada's target range. Statistics Canada noted that without the tax break, February's inflation would have reached 3%.

This inflationary trend has led to increased speculation regarding a potential pause in interest rate cuts, with the Canadian dollar and two-year government bond yields seeing an uptick following the news. Economists warn that ongoing U.S. tariffs and Canadian retaliatory measures could further drive prices higher.

(With inputs from agencies.)