The consumer price index (CPI) rose 1.4% (year-on-year) in January, down from 2.0% in December and right on the median survey estimate. Falling energy prices (-6.9%) were the main factor pulling down inflation. Excluding energy, prices were up 2.1%.
Services prices also decelerated to 2.7% (from 3.5%) in December. Air transportation appears to be giving the statisticians some trouble: following a 28% (y/y) gain in December, it fell back to 4.1% in January. The volatility in this component has risen dramatically over the past year alongside methodology changes, increasing the variability in headline inflation.
The Bank of Canada’s preferred measures of core inflation were flat in January. CPI-common and CPI-trim remained at 1.9% year-on-year (a five month trend in the former and three month in the latter), while CPI-median held at 1.8% for the third straight month.
Key Implications
Outside of the usual noise in energy and (now) air transportation, there is little to report inflation-wise in Canada. Core measures are steady at just below 2% and appear likely to stay there as the economy faces a near-term growth slowdown.
The Bank of Canada is maintaining a bias to further tightening, but with limited inflation and slowing growth there is little urgency on this front. Indeed, much like their counterpart stateside, the benign inflation environment may lead policymakers to question whether further rate hikes are even necessary or whether the current policy setting is the fabled goldilocks “just right”.
