Canada’s Raw Material Price Index rose by 0.6% in February.
This was below the forecast of 2.4%.
This morning’s Raw Material Price Index data was a significant miss, coming in far below what we and the market expected. This figure suggests that inflationary pressures at the start of the supply chain are cooling much faster than anticipated. We should view this as a leading indicator that the Bank of Canada’s tight monetary policy is having a strong effect.
This weak input price data follows January’s headline inflation rate, which was still stubbornly high at 2.8%. The new RMPI number is the first clear signal that a downturn in the Consumer Price Index could be coming in the months ahead. This fundamentally alters the outlook for the Bank of Canada’s next interest rate decision.
We believe the market will now begin pricing in a higher probability of a rate cut by mid-year, shifting expectations forward. Looking back at how markets behaved in 2025, we saw Canadian bond yields fall significantly in the weeks leading up to the Bank’s first policy pivot. Traders should consider positioning for lower yields through instruments like BAX futures or options on bond ETFs.
The implications for the Canadian dollar are directly negative, as interest rate differentials with the United States are set to widen. The U.S. Federal Reserve is dealing with more robust growth, with their latest jobs report showing over 215,000 positions added. This policy divergence should put downward pressure on the CAD, making bearish positions on the currency, perhaps through USD/CAD call options, an attractive strategy.
This economic signal is compounded by Canada’s slowing growth, with the last quarter of 2025 showing GDP grew at only a 0.9% annualized rate. A combination of weak growth and falling inflation gives the Bank of Canada a clear runway to begin easing its policy. Historically, the RMPI has led the CPI by two to three quarters, so this soft February number points toward a much cooler second half of the year.
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