Economists had anticipated Statistics Canada's annual inflation rate would tumble because of a spike in gasoline prices in February 2013 that didn't happen again this year, but increases in other goods kept the actual decline less than expected.
Travel tour prices were 14.3 per cent higher than in January, hotel accommodation rose 4.7 per cent, and women's clothing gained 2.7 per cent, Statistics Canada reported Friday.
Gasoline also advanced 2.3 per cent and food prices rose one per cent in February compared with the previous month.
Analysts said the reading is just what Bank of Canada governor Stephen Poloz wanted and should erase any fears of disinflation, as well as lessen speculation he might cut interest rates to stimulate economic activity. The bank hopes to keep inflation within a range of one-to-three per cent and as close to two per cent as possible.
"They have been worried about persistently low inflation and, for two months in a row now, we've had upward surprises on inflation and that should bring some smiles to the faces of policy-makers at the bank," said Benjamin Reitzes, a senior economist with the Bank of Montreal.
Jimmy Jean of Desjardins Capital Markets said he expects inflation to inch up further and even hit the bank's two per cent target later this spring.
That may not be welcome news for consumers, Jean said, but it's a strong signal of healthy economic activity since it shows shoppers and business are prepared to spend.
The economy got another bit of good news Friday with a report that retail sales had rebounded smartly from December's weather-induced plunge, rising a better than expected 1.3 per cent in January.
The markets responded well to the dual reports from the agency, bumping up the dollar almost a third of a cent to 89.25 cents US in early morning trading.
"The strong rebound in retail sales volumes in January, following the weather-related drop in the month before, suggests that the economy recovered fairly quickly," said David Madani, chief economist with Capital Economics in Canada.
Still, most economists and the Bank of Canada are expecting a soft first quarter of growth, in part because of the weak December hand-off and the fact that weather continued to be harsh in January and February. But they also see a big make-up in the second quarter, which begins April 1, and 2014 growth to reach between two and 2.5 per cent.
On the inflation front, the higher than predicted annual figure was due to a stronger 0.8 per cent month-to-month jump in the consumer price index which, while less than the increase seen a year earlier, was still enough to keep the annualized inflation rate above one per cent.
On an annual basis, gasoline slumped by 1.3 per cent, coming off a 4.6 per cent gain in January. As well, electricity costs rose 4.7 per cent, property taxes 3.2 per cent, rent 1.5 per cent and fresh fruit 7.5 per cent. Food, a major contributor to the index, rose a modest 1.1 per cent, matching the increase in January.
Meanwhile gasoline, women's clothing, digital computing devices, prescribed medicines and tools and other household equipment all cost less than in February 2013.
Regionally, inflation was strongest at 2.7 per cent in Prince Edward Island and weakest in British Columbia, where prices declined by 0.3 per cent.