(OTTAWA) Canada’s inflation rate likely fell further last month, but as many Canadians continue to grapple with the high cost of living, the Government of Canada is under pressure to provide more aid in its next budget.

Statistics Canada is due to release its February Consumer Price Index (CPI) report next Tuesday, before the federal government’s budget is tabled in the House of Commons on March 28.

Desjardins Group and Royal Bank (RBC) both predict that the inflation rate fell to 5.4% last month, down from 5.9% in January.

But even if inflation eases, the federal government has signaled that the budget will include measures to help Canadians who are still struggling with the cost of living.

According to Desjardins chief economist Jimmy Jean, all eyes are on Ottawa to balance priorities to make life more affordable with budget restrictions.

The Bank of Canada has focused on bringing inflation down to its 2% target. Its aggressive cycle of rising interest rates over the past year is beginning to slow the economy by forcing individuals and businesses to cut spending.

As the economy slows, observers worry that excessive or untargeted action by the federal government could undermine the central bank’s efforts and force it to raise interest rates even further.

Finance Minister Chrystia Freeland has repeatedly said she is committed to fiscal restraint and ensuring the federal government does not complicate the work of the Bank of Canada. But the Liberal government is also under pressure from the opposition New Democratic Party (NDP) to continue supporting low-income Canadians who are hardest hit by inflation.

NDP Leader Jagmeet Singh wants the government to extend the six-month increase in the Goods and Services Tax (GST) refund, introduced last fall, which temporarily doubled the amount people received .

At a press conference on Wednesday, Prime Minister Justin Trudeau did not say whether his government would extend the refund, but said the budget would include affordability measures. “In our budget, we will propose measures that will directly help Canadians,” he said.

Inflation has become a major political and economic concern in Canada after a sharp rise in prices last year, due in part to the Russian military invasion of Ukraine and supply chain disruptions. But since peaking at 8.1% last summer, Canada’s inflation rate has steadily fallen as global inflationary pressures ease and high interest rates weigh on the economy.

Jimmy Jean believes that the decline in gasoline prices last month likely pushed down the headline inflation rate further. Other components of the CPI, such as food prices, have not fallen much. Grocery prices in January were 11.4% higher than a year ago.

Royal Bank economist Carrie Freestone argues that businesses, including grocers, have been able to pass on the additional costs they face from suppliers to consumers. But food prices are expected to fall further as lower agricultural commodity prices trickle down the supply chain. “It just seems to take a little while,” she clarifies.

The Bank of Canada is currently holding its key interest rate at 4.5%, hoping inflation will come down without the need for further rate hikes. It forecasts that inflation will fall to around 3% by the middle of the year.

“As long as inflation continues to decline as we expect…(the Bank of Canada) will likely stay on the sidelines,” Carrie Freestone said.

For workers who have not seen their wages keep up with inflation, the rapid rise has been particularly trying. But as inflation slows, the gap between the two narrows.

In February, the average hourly wage increased by 5.4%, in line with inflation expectations.

The Bank of Canada said steady wage growth would make it difficult to return to the 2% inflation target.

Jimmy Jean thinks that for workers, the narrowing gap between inflation and wage growth is good news, but does not make up for what they have lost. “We are not talking here about catching up with the last two years of wage growth without keeping pace with inflation, but just stopping the bleeding. »