Highlights:
- Headline CPI inf lation growth slowed as expected to 1.4% year-over-year from 2.0% in December
- Airfares retraced most of a 22% m/m surge in December but were still up 4.1% from a year ago. Energy prices fell as expected given earlier-reported gasoline price declines.
- The BoC’s three preferred core measures averaged 1.9%, unchanged from December. Ex food and energy inf lation slipped to 1.9% from 2.3% in December (ref lecting the pullback in airfares)
Most of the dip in the headline rate to 1.4% year-over-year from 2.0% in December came from a pullback in energy prices and a retracement of a December surge in airfares. The latter has been highly volatile since Statistics Canada implemented a new methodology for tracking airfares last year. Unpredictable volatility might persist for a while. In perhaps a sign of things to come, rent prices rose 1.0% monthover- month in January — the largest increase since 1988 — as Statistics Canada implemented a new methodology for calculating that monthly data. However, the overall January inf lation report came in as expected with the move in rent prices generally offset elsewhere in the report.
Beyond energy price volatility and wild swings in airfares, underlying inf lation trends are still running right around the Bank of Canada’s 2% price target. The Bank of Canada’s three preferred ‘core’ inf lation measures — the common, trim, and median CPIs — averaged 1.9% in January and have been remarkably stable in the 1.9%-2.0% range since February of last year. The inf lation data is still consistent with an economy running at capacity, but has shown no sign of breaking unsustainably higher. We continue to think there is a little more room for official policy interest rates to move up from still-low levels but with earlier interest rate hikes and regulatory measures already successfully slowing household debt growth and inf lation trends still tame there is little push for the central bank to rush.
