Consumer prices rose a faster-than-expected 1.7% year-on-year in Canada in January (consensus was for 1.5%), edging down from 1.9% in December.
The deceleration in headline inflation was mainly an energy price story. Energy prices rose swiftly last January, and as those gains fell out of the index, the year-on-year rate fell to 2.4% (from 4.5% in December). Prices were up a robust 0.5% on a seasonally adjusted month-on-month basis.
Food price inflation meanwhile picked up steam, rising 2.3% (up from 2.0%) and rising at the fastest rate since April 2016. Higher prices at restaurants led the acceleration, rising to 3.7% (from 2.9% in December).
Core price measures showed a firming trend with the CPI-common moving up from 1.6% to 1.8%, while CPI-trim and CPI-median remained unchanged at 1.8% and 1.9% respectively.
Key Implications
The impact of minimum wage legislation in Ontario was hard to ascertain in the January employment report, but easier to see in the price data. The acceleration in food price growth came in large part due to restaurants and in Ontario. Child care and housekeeping services prices also accelerated in the month.
The Bank of Canada may look through the one-time impact of higher minimum wages, but it cannot ignore the broader evidence of price pressures that are becoming apparent. The firming in core measures in particular, suggests that the strong economic growth that Canada has experienced over the past year is doing its job in pushing inflation toward the Bank’s 2% target.
