OTTAWA, March 18 (Reuters) - Canada's annual inflation rate showed a surprise jump to 2.6% in February surpassing expectations as a sales tax break that ended mid of last month pushed prices higher amid an already broad-based price increase, data showed on Tuesday.
This is the first time in seven months that the rate of increase of consumer prices have crossed the 2% mark, the mid-point of the Bank of Canada's 1% to 3% target range. In January, inflation was at 1.9%.
Without the tax break, inflation in February would have been 3%, Statistics Canada said.
Increasing inflationary pressure is likely to dissuade the BoC from any rate cut next month unless other major economic indicators such as the GDP and unemployment deteriorate considerably.
On a month-on-month basis, prices rose by 1.1% in February from 0.1% the prior month, Statscan said.
Analysts polled by Reuters had forecast the yearly inflation at 2.2% and 0.6% on a monthly basis in February. The BoC had said last week it expected inflation to reach 2.5% in March amid price pressures due to tariff-related uncertainty.
While the prices increased across almost the entire CPI basket, the major jump was noticed in food purchased at restaurants, some clothing items and alcohol after the tax reprieve was lifted.
"Restaurant food prices contributed the most to the acceleration in the all-items CPI in February," Statscan said.
Food prices increased 1.3% year over year while clothing and footwear increased by 1.4 on a yearly basis. Other items that added to price pressures in the CPI basket were transportation that jumped by 3% and usually elevated shelter costs which was up 4.2%.
Economists have said the sales tax break had distorted overall inflation numbers, and that core inflation was a more accurate gauge of consumer price trends.
The BoC has two preferred measures of core inflation - CPI-median and CPI-trim.
CPI-median - or the centermost component of the CPI basket when arranged in an order of increasing prices - rose to 2.9% in February.
CPI-trim - which excludes the most extreme price changes - was also up to 2.9%. Both were at 2.7% in January.
Currency swap markets are betting for a 59% chance of pause in interest rate cutting cycle next month.
Reporting by Promit Mukherjee; Editing by Dale Smith
