By Paul Vieira 

OTTAWA -- Canadian inflation decelerated slightly in February, as higher prices for gasoline and cars was offset by the fifth straight monthly decline in food costs.

The all-items consumer-price index in February rose 2% from a year earlier, Statistics Canada said Friday, compared with a 2.1% increase in January and a 1.5% advance in December. Market expectations were for a 2.1% climb in February, according to economists at Royal Bank of Canada.

February marked the second straight month Canada's annual CPI was 2% or higher. The Bank of Canada sets interest-rate policy to achieve and maintain 2% inflation.

On a month-over-month basis, CPI in February rose 0.2%.

Three gauges of underlying, or core, inflation were largely unchanged from the previous month, with all of them below the 2% mark. They rose in a range from 1.3% to 1.9%, for an average advance of 1.6%. The Bank of Canada said the three indicators -- introduced late last year, to replace a single core inflation reading -- are better equipped to filter out onetime, or transitory, changes in prices, and to measure the amount of spare capacity in the economy.

In a speech this week, Bank of Canada Deputy Governor Lawrence Schembri reiterated an earlier message from the central bank that its rate policy was appropriate to achieve its 2% inflation target on a sustainable basis by mid-2018. "Although the Canadian economy has made good progress adjusting to the oil price shock, material slack in our economy remains, " he said.

Jimmy Jean, economist at Desjardins Capital Markets, said the February CPI data are enough to reinforce the central bank's dovish tilt. "The underlying inflation data is pretty much unchanged," he said.

The Bank of Canada said at its last rate decision that further easing remained an option, given the uncertain economic outlook due to U.S. trade policy and the presence of spare capacity. However, market watchers say the central bank will be hard pressed to maintain this dovish tilt amid a bevy of stronger-than-anticipated economic indicators in recent months.

Bank of Canada Gov. Stephen Poloz is scheduled to deliver a speech in Oshawa, Ontario next Tuesday.

As for the February CPI report, Statistics Canada said a 23.1% rise in gasoline prices from a year ago and a 3.6% advance in the cost of cars were the main contributors pushing the headline inflation rate to 2%. Excluding energy, prices on a 12-month basis rose by a more muted 1.3%, the data agency said.

Meanwhile, the food index fell 2.3%, or the fifth straight monthly decline, due to a 14% drop in fresh vegetables and a 13.3% decline in fresh fruit.

On a seasonally-adjusted basis, Canada's CPI declined 0.2% in February, after a 0.7% increase in the previous month.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

March 24, 2017 09:12 ET (13:12 GMT)

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