Quick Take

Gasoline and housing prices push inflation up in January

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The Conference Board of Canada’s economist Anna Feng offers the following insights on today's release of the Consumer Price Index (CPI):

January’s inflation inched up 1.0 per cent on a year-over-year basis, thanks to rising gasoline prices and surging housing prices. We expect that as restrictions ease and economic activity rebounds, inflation will gradually recover over the coming quarters

  • The consumer price index rose 1.0 per cent when compared to last January, up from the 0.7 per cent growth in December.
  • Gasoline prices jumped 6.1 per cent in January, its largest monthly increase since early 2019. This came as a result of recent oil production cuts by Saudi Arabia and several other oil-producing countries. While the price of gasoline is still 3.3 per cent lower than this time last year, easing of restrictions and a continued rebound in economic activity should boost oil demand in the coming months. Excluding gasoline, inflation inched up 1.3 per cent in January.
  • Housing prices have kept rising in recent months because of demand for larger homes, higher building costs, low mortgage interest costs as well as a housing supply shortage. Homeowner’s replacement cost—an index accounting for new homes prices—surged 5.8 per cent compared to last January, its highest year-over-year growth since August 2007.
  • With more restrictions in place last month, including for travel, prices for air transportation (down 5.5 per cent) and traveller accommodation (down 16.1 per cent) continued to put downward pressure on inflation. These prices are likely to remain muted until restrictions on these activities begin to lift.
  • The average of the Bank of Canada’s three measures of core inflation inched up 1.5 per cent last month, below the Bank’s 2.0 per cent target.
  • Overall, January’s inflation reflects a mild pickup in economic activity, especially for new homes. While COVID-19 restrictions continued to weigh on consumer prices, we expect that inflation will gradually rebound over the coming quarters under the assumption that restrictions will ease

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Anna Feng

Anna Feng

Economist

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