Consumer price inflation continued to decelerate in January, up 5.9% versus a year ago (y/y), from 6.3% in December.
Prices for cellular services and passenger vehicles contributed to the deceleration, as holiday discounting spilled in to January in the case of the former, and improved supply chains contributed to the decline for the latter.
Energy prices rose in January, as prices at the pump surged 4.7% month-on-month (m/m). However, gasoline prices are only 2.9% higher than a year ago.
Shelter prices continued to increase, as “the mortgage interest cost index continued to rise at a faster year-over-year pace amid the higher interest rate environment, rising 21.2% in January, the largest increase since September 1982.”
Food inflation also rose in January, up 10.4% y/y, versus 10.1% in December. Food at grocery stores continues to see high inflation, while food at restaurants is picking up stream (+8.2% y/y from +7.7% in December).
Underlying inflation pressures eased, with CPI ex-food and energy up 4.9% y/y, down from 5.3% in December. The BoC’s core inflation measures moved in a positive direction in January, with CPI-trim at 5.1% y/y (5.3% in Dec.) and CPI-median at 5.0% y/y (5.2% in Dec.).
Key Implications
January’s CPI report showed that inflation continues to cool in Canada. Headline and core measures are falling on a year-on-year basis and should decline even further over the coming months as the base effect of last year’s first half price surge washes out of the data.
For the Bank of Canada, it will need to see this trend continue for it to be comfortable remaining on the sidelines. As we highlighted in our Quarterly Economic Forecast, a slowing in economic momentum will be needed for inflation to decisively fall back towards the 1% to 3% target range. The recent uptick in employment and spending data complicate this. But given the improvement in inflation data today, the BoC will not feel rushed to jump back in with another rate hike just yet.
