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“Today brought a mixed bag of economic reports from Canada, with inflation showing a small spark but retail sales surprisingly sluggish at the start of the year,” Doug Porter, chief economist at Bank of Montreal, wrote in a note to clients. For the Bank of Canada, the main message is “rates are in lock-down mode for the foreseeable future,” he said.

The Canadian dollar remained lower after the reports, trading down 0.3 per cent at 74.61 US cents at 9:10 a.m. in Toronto trading. Government 2-year bonds yielded 1.56 per cent, a drop of 5 basis points from Thursday and the least since 2017.

Economists had predicted inflation would remain unchanged at 1.4 per cent. Core measures — seen as a better gauge of underlying price pressures — dropped slightly to 1.83 per cent from 1.87 per cent.

The Bank of Canada anticipates inflation will remain below its 2 per cent target for most of this year, one reason it’s unlikely to be in a hurry to lift borrowing costs any further. In fact, markets have started to price in a possible rate cut.

There are few signs of any price pressure in the report. Inflation in the service sector was down to 2.3 per cent in February, from 2.7 per cent the previous month. Excluding gasoline, inflation was 2.1 per cent in February, unchanged from the previous month.

Food has been a major driver of inflation gains over the past year. Excluding food prices however, inflation was just 1.2 per cent.

The retail numbers also showed underlying weakness in the economy, damping hopes for a better start to the year after promising January numbers from manufacturers and wholesalers over the past week.