Inflation could spike to 3% or more on rising gas prices from Iran war, economists warn
Some economists say Canadian inflation’s drop could soon be thwarted and reverse to as high as three per cent or more in the coming months if the war in Iran continues.
Inflation in February came in at 1.8 per cent year over year, according to consumer price index (CPI) data released on Monday by Statistics Canada , slightly cooler than expectations for 1.9 per cent and down from 2.3 per cent in January.
Here’s what economists said about the latest inflation data and where it could go from here.
‘Before’ and ‘after’: CIBC
“The ‘before’ picture of Canadian inflation ahead of the oil price shock should give the Bank of Canada some comfort as it looked tame overall,” Katherine Judge, an economist at CIBC Capital Markets , said in a note.
The core inflation measures most important to the Bank of Canada — CPI-median and CPI-trim — both decelerated to 2.3 per cent year over year from 2.5 per cent and 2.4 per cent, respectively.
On a three-month annualized basis, median, trim and CPI excluding food and energy slowed to 1.4 per cent, Judge said.
Shelter inflation also pulled back to 1.9 per cent year over year. Gasoline prices rose slightly, but were down 14 per cent from a year ago.
“While the before picture looked good, the after picture of inflation following the start of the war could show headline inflation accelerating to roughly three per cent year over year in the coming months,” she said.
‘Non-event’: Rosenberg Research
“Well, at least we know that before the effects of the war in Iran showed up, Canadian inflation was a non-event,” David Rosenberg, president of Rosenberg Research & Associates Inc. , said in a note. “Then again, with employment contracting, why would anyone expect the demand side of the economy to be triggering any price inflation?”
Canada lost 84,000 jobs in February, Statistics Canada said on Friday, adding to the losses in January. The unemployment rate rose to 6.7 per cent from 6.5 per cent in January.
February inflation by many measures undershot expectations, Rosenberg said.
For example, the unadjusted CPI was 0.5 per cent month over month, below the consensus of 0.7 per cent. Core inflation year-over-year slowed to two per cent, undershooting expectations for 2.1 per cent. And headline CPI at 1.8 per cent — a seven-month low — also sat below estimates.
Rosenberg said slowing core median-CPI speaks to “disinflation” spreading in the economy.
Core CPI excluding food and energy is right on the Bank of Canada’s inflation target of two per cent, the slowest since April 2021.
“All of the anxiety at the central bank level from the trade conflict never reared its ugly head,” he said. “And that attests to the power of the disinflationary output gap in an economy where aggregate supply is running ahead of aggregate demand.”
He predicted that any inflation from the war in Iran will further challenge a weak labour market, where higher energy prices will limit incomes and spending power.
‘Antebellum tinge’: BMO
“With the conflict in Iran beginning on the last day of February, this report has a distinct antebellum tinge,” Douglas Porter, chief economist at BMO Economics , said in a note.
Prices at Canadian gas pumps fell 14 year over year in February, but he said they could jump by as much as 15 per cent month over month in March, possibly pushing headline inflation above three per cent in the months to come.
“But returning the focus to where price pressures were before the war reveals that underlying inflation was indeed ebbing nicely early this year,” he said.
Several categories provided inflation relief, among them groceries, which slowed to 4.1 per cent year over year and 4.8 per cent in January. Cellphone services also pulled back, as did shelter costs and rents.
“While this release has a stale feel, since gasoline prices have since surged more than 15 per cent just since the end of last month, it clearly shows that underlying inflation was decelerating notably in early 2026,” Porter said.
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