After Statistics Canada released its consumer price index (CPI) report on Tuesday, showing annual inflation dropped 2.8 per cent with figures appearing softer than expected for a second consecutive month, economists believe the Bank of Canada is on route to cutting interest rates, with shelter price dynamics a major factor to be considered.

In an interview with BNN Bloomberg on Tuesday, Dylan Smith, senior economist at Rosenberg Research, says the central bank is “definitely moving in that direction,” referring to the potential for interest rate cuts as inflation continues this downward trend.

“Last month we had headline inflation dipping below three per cent for the first time — and it’s really good to see that trend is continuing on the headline,” Smith said, also mentioning the importance of evaluating shelter and wage data to better understand economic trajectories.

Smith said there’s a “global game” between the U.S. and Canada, regarding which country will cut interest rates first.

“If (BoC) do cut first, that will probably increase import prices in a way they won’t want to see.”

Here’s what other economists have to say about the recent CPI data.

'Look beyond gasoline'

Tu Nguyen, an economist with RSM Canada, believes the inflation measures should open the doors for a June rate cut.

“Groceries inflation fell below the headline number for the first time since 2021,” he said in an email statement sent to BNN Bloomberg.

“When consumers go to the grocery stores these days, they can see prices rise more slowly. Deals and discounts are becoming more common once again. And that makes a positive difference for Canadian households.”

Nguyen added that volatile oil prices deem it necessary to “look beyond gasoline and at the underlying price pressures.”

“Besides shelter, all indicators are pointing to easing price pressures in a cooled economy,” he said in the statement.

“As long as core inflation measures continue to make progress in the upcoming months, Canada will soon see the rate cut cycle begin.”

Pandemic-induced inflation may be 'behind us'

Shannon Terrell, a financial expert and spokesperson for Nerd Wallet Canada, calls the new data a “promising development.”

In an email statement to BNN Bloomberg, Terrell said “the worst of the country’s pandemic-induced inflation may be well and truly behind us,” also saying that it’s too soon to declare the end of inflationary pressures.

"Price growth for groceries continues to decline, while a drop in the cost of cell phone and internet services was one of the primary drivers behind February’s year-over-year decline,” Terrell said in the statement.

'The elephant in the inflationary room'

In response to Statistics Canada CPI data, the Conference Board of Canada released insights on what the figures mean for the Canadian economy.

Despite anticipated rate cuts later this year, senior economist Kiefer Van Mulligen said that the persistence of elevated price growth for services is “the elephant in the inflationary room.”

“Service prices grew by 4.2 per cent in February, whereas goods prices rose by only 1.2 per cent year over year,” Mulligen said in a statement posted on the Conference Board of Canada’s website.

Mulligen added that shelter cost dynamics are “the primary motive force behind this stubbornness.”

“Mortgage interest cost growth is cooling slightly, though its 26.3 per cent gain year over year in February will bring little comfort to concerned consumers,” he said in the release.

Mulligen also mentioned that rent price growth increased by 8.2 per cent over the same time last year, with shelter representing nearly 30 per cent of the consumer basket in Canada.

“As the year unfolds, we will see how willing the Bank of Canada is to look through shelter price dynamics when determining when to trim interest rates.”