Canada's annual inflation rate increases to 2.6% in February

TORONTO (Reuters) -Canada's annual inflation rate rose to a higher than expected 2.6% in February, on broad-based increases, including the end of the GST/HST holiday on food and certain other items, Statistics Canada said on Tuesday.

Market reaction: [CAD/]

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COMMENTARY

KATHERINE JUDGE, SENIOR ECONOMIST, CIBC CAPITAL MARKETS

"Canadian inflation accelerated sharply in February, as the temporary GST holiday came to an end in the middle of the month ... However, even looking through categories impacted by the end of the GST holiday showed that price pressures accelerated."

"Overall, the unexpected pickup in core measures isn't good news as this doesn't yet reflect the impact of tariffs, which will see headline CPI exceed 3% year-over-year in the coming months."

ADAM BUTTON, CHIEF CURRENCY ANALYST AT FOREXLIVE

"The Bank of Canada has a big job on their hands in the next few months sorting through HST holiday impacts and then carbon tax removal. The Bank of Canada will have a difficult job seeing the signal through the noise with everything going on in the Canadian economy. At the end of the day though their mandate is headline inflation and this is a troubling jump."

ANDREW KELVIN, HEAD OF CANADIAN AND GLOBAL RATES STRATEGY AT TD SECURITIES

"It has put the Bank of Canada in a very interesting position. On one hand, I think it really reinforces the idea that the march rate cut had only happened because of concerns around tariffs. On the other hand, we still are facing trade uncertainty around the economy and the Bank of Canada does need to be wary about the negative impacts of future inflation from weaker demand. So it is a difficult balance. So ultimately the demand impact will outweigh the concerns around near term inflation expectations, particularly with the consumer carbon tax that will disappear in April. But it certainly complicates matters for the Bank of Canada… it would be prudent to get a rate cut in April but certainly this could lead the BOC to pause in April."

(Reporting by Fergal Smith and Divya Rajagopal; Editing by Caroline Stauffer)