- Canadian consumer price inflation rose to 1.0% year-on-year (y/y) in January, up from 0.7% in December and a hair above the consensus estimate for 0.9%.
- Energy prices were a key contributor to the rise, rising 1.5% month-on-month in January and moving from -4.0% to -2.7% relative to a year ago.
- Price growth was relatively widespread. On a seasonally adjusted basis, prices were up a strong 0.4% in the month. Most major categories rose, led by transportation prices, which increased 1.7%. Shelter costs pulled back by 0.2% in the month as homeowners replacement costs slowed and mortgage interest costs weighed on price growth.
- Core inflation edged up in January. CPI-trim rose to 1.8% (from 1.6%) and CPI-median to 1.4% (from 1.3%). CPI-common was unchanged at 1.3%.
Key Implications
- Energy prices were still negative relative to a year ago in January, but will soon turn (very) positive. With the WTI benchmark price pushing above $60, the comparison to the plunge in prices last spring will be a key factor pushing up year-on-year inflation metrics over the next few months. The all-items CPI measure is likely to get close to the 3% mark by May of this year.
- Beyond the headline volatility, inflation is likely to remain subdued at least until the health crisis has passed. Once on the other side, the story will shift. After a year cooped up at home, people will surely be anxious to get out and travel, eat out, and see live performances. The pick up in demand is likely to show up in faster price growth in the second half of this year.
