Inflation Rate Slipped Under 3.0 Per Cent in January

Canadian Economics

  • In January, the Consumer Price Index (CPI) rose by 2.9 per cent (y/y). This was lower than December’s 3.4 per cent (y/y) increase.
  • Gasoline prices fell by 0.9 per cent (m/m) and were 4.0 per cent lower than a year ago. Year-over-year, food prices increased in stores (+3.4 per cent) and restaurants (+5.1 per cent).
  • Core CPI (excluding food and energy) grew by 3.1 per cent in January (y/y), which was lower than the 3.4 per cent increase (y/y) in December. Higher prices in several shelter components were key contributors to overall CPI growth.
  • On a seasonally adjusted monthly basis, the CPI fell by –0.1 per cent in January (following a 0.3 per cent gain in December).
  • The average of the Bank of Canada’s three core inflation measures fell to 3.4 per cent in January from 3.7 per cent in December. CPI-common fell to 3.4 per cent, CPI-median dropped to 3.3 per cent, and CPI-trim deaccelerated to 3.4 per cent.

Key Insights

  • Inflation is cooling, but the deceleration of headline CPI in January sits atop some unevenness in the price-easing process. Key measures of core inflation cooperated in January, falling modestly. Gasoline prices were also 4.0 per cent lower than a year ago. Food price growth continued to decelerate, growing by a slower 3.9 per cent (y/y). But prices for some components of the consumer basket are still rising quickly. Shelter costs, encompassing accelerating rent prices, grew by 6.2 per cent (y/y).
  • Canadians are still closely following the inflation saga. Survey evidence from the Bank of Canada shows that consumers have pared back their price growth expectations for many goods, but many expect price growth for specific services, including rent, entertainment, and meals at restaurants, to remain elevated. This fits with consumers’ recent experience. Broadly, goods inflation has been contained within the Bank of Canada’s target range for the past severalmonths, while service price inflation remains elevated and grew by 4.2 per cent (y/y) in January.
  • January’s inflation figures support the Bank of Canada’s more neutral tone on interest rates. Since rates reached their current contractionary level in July 2023, the Bank’s press releases have largely been characterized by a lean towards greater tightening. But the language used in January’s rate announcement showed some signs of a shift to neutrality. In December 2023, the Bank remained “prepared to raise the policy rate further if needed,” though this language was not included in January’s announcement. This doesn’t mean that interest rate cuts are coming in March. While cooler headline CPI growth will encourage a looser monetary policy grip, the Bank of Canada is watching wage growth figures closely as they remain a clear risk to the progress made in bringing inflation down (especially as productivity continues to fall). International risks, such as conflict along shipping lanes in the Red Sea and bottlenecks at the Panama Canal, could also impede a return to target.

For more details about our inflation forecast and inflation’s impact on the Canadian economy, please consult our Canadian Five-Year Outlook.