Food prices continue to rise, as Canada's headline inflation eases to 5.9 per cent in January
Canada's inflation rate eased to 5.9 per cent in January, Statistics Canada said on Tuesday, offering an encouraging sign to the Bank of Canada even as mortgage interest costs and food prices continue to soar.
On a monthly basis, Statistics Canada said inflation increased 0.5 per cent, or a seasonally adjusted 0.3 per cent, with higher gasoline prices contributing the most to the monthly increase. Analysts polled by Reuters had expected the Consumer Price Index (CPI) to edge down to 6.1 per cent from the 6.3 per cent increase posted in December.
Statistics Canada noted in its release on Tuesday that prices increased at a slower pace in January compared to December "due to a base-year effect," as mounting tensions in Jan. 2022 related to the threat of Russia's invasion of Ukraine put upward pressure on prices.
"Today's CPI represents a rare downside surprise in both headline and core inflation, clearly a big step in the right direction," BMO Capital Markets chief economist Douglas Porter wrote in a research note on Tuesday.
"While there were some one-off factors helping out, there were also numerous special factors on the way up last year—so we were due for some better inflation luck, with a cooling economy and improved supply chains also contributing."
On a year-over-year basis, gas prices rose 2.9 per cent in January. Mortgage interest costs increased at a faster annual pace, increasing 21.2 per cent, the largest increase since 1982.
While inflation slowed in January, food prices remained stubbornly high. Food prices, which include both groceries and food from restaurants, increase 10.4 per cent year-over-year, a slight increase from December's 10.1 per cent gain. The cost of food purchased from grocery stores increased 11.4 per cent, up from 11 per cent in December. Meat prices were up 7.3 per cent, bakery products up 15.5 per cent, and fresh vegetable prices rose 14.7 per cent.
The Bank of Canada's closely watched trim and median core inflation measures were up 5.1 per cent and 5 per cent, respectively, a drop from last month.
What CPI means for the Bank of Canada rate
Tuesday's inflation data come as the Bank of Canada considers a "conditional pause" on interest rate hikes while it assesses the effects of its recent tightening cycle, one of the most aggressive in the bank's history. Since March 2022, the Bank of Canada has raised its benchmark rate by 425 basis points, bringing the rate to 4.5 per cent. Bank of Canada Governor Tiff Macklem said the pause is "conditional on economic developments coming out in line with our forecast."
Porter says the data "will provide the Bank of Canada with some comfort on their decision to move to a conditional pause, acting as a strong antidote to the run of robust growth figures seen in recent weeks." Canada's labour market added 150,000 jobs in January, blowing past economist expectations.
Desjardins principal economist Marc Desormeaux wrote in a research note that while inflation "is still a country mile away from the 2 per cent target," January's CPI "was one of the most optimistic since the start of our current inflationary predicament."
"We're encouraged by the continued easing of multiple measures of core inflation, although it's far too early to declare victory," Desormeaux said.
"The Bank has stressed that to ditch the current plans to pause rate hikes, it needs an 'accumulation of evidence' that inflation isn't cooperating. Today's print suggests it just might be able to avoid any further rate increases."
Investors had increased their bets that the Bank of Canada will hike its key lending rate at least once more this summer, delaying any cuts to the rate until next year in the wake of stronger-than-expected economic data.
With files from Reuters
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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