Highlights:
- Headline CPI growth eased to 1.7% from 1.9% in December – but only because a large monthly jump in energy prices a year ago wasn’t repeated.
- Excluding food & energy, year-over-year price growth inched down to 1.5% from 1.7% in December.
- The Bank of Canada’s preferred ‘core’ measures ticked higher, on balance. The CPI-common measure ticked up to 1.8% – its highest level since 2012.
Our Take:
Year-over-year growth in headline CPI moderated to 1.7% in January from 1.9% in December – but that was still well-above market expectations for a 1.5% increase. An unusually large but ultimately transitory month-over-month increase in prices a year ago was supposed to weigh more heavily on the January year-over-year growth rate. Price growth excluding food & energy products also ticked down to 1.5% from 1.7% in December – but that was also a little stronger than we expected given the aforementioned year-ago base effects. The Bank of Canada’s core measures actually ticked higher, on balance. The median and trim measures held steady while the CPI-common measure ticked up to 1.8% from 1.6%.
Part of the stronger-than-expected increase in January CPI appears to have come from businesses in Ontario hiking prices in response to a large increase in the minimum wage. Excluding Ontario, year-over-year CPI growth moderated to about 1.6% from 2.1% last month by our calculation. With that said, signs of firming in both wages and consumer price growth are not really new. To be sure, there is still little evidence that inflation is anywhere close to getting out of hand on the upside. At the same time , firming in underlying price growth should further reinforce the Bank of Canada’s view that the economy is operating pretty close to its long-run capacity – and supporting the view that further gradual rate hikes towards more normal long-run ‘neutral’ levels will be appropriate.
