The annual rate of inflation across the country eased half a percentage point in January thanks largely to lower gas prices, according to Statistics Canada.
The overall inflation rate was 2.9 per cent in January, the agency said Tuesday. That’s down from 3.4 per cent in December, when it accelerated slightly from the previous month.
Gas prices fell month-to-month for the fifth consecutive month, StatCan says. A pause to the provincial gas tax in Manitoba contributed to the decline.
Price growth at the grocery store also cooled significantly, up 3.4 per cent in January compared to 4.7 per cent in months previous. While StatCan says the cooling in food inflation was “broad-based” across aisles in the grocery store, some items including shrimp and prawns, soup and bacon saw year-over-year price drops.
Airfares were cheaper on an annual basis – down 14.4 per cent in January compared with 9.7 per cent in December – and consumers were also paying less for clothing last month, according to StatCan.
Cellular services prices ticked back up on a monthly basis following the end of promotional campaigns in November and December, the agency said.
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StatCan noted that January marked the first month-to-month decline in the overall consumer price index on a seasonally adjusted basis – the first time this has happened since the start of the COVID-19 pandemic almost four years ago.
Bank of Canada can consider spring rate cuts, economists say
Economists had expected inflation had cooled in January, but not necessarily this much.
BMO chief economist Doug Porter said in a note to clients on Tuesday morning that a cool start to the year for price hikes can send a vital signal for the rest of 2024.
“January can set the tone for inflation, since firms often take the opportunity to adjust prices for the year in this month—and there was little sign of a big January bump this year,” he wrote.
The Bank of Canada is looking for signs inflation will continue to ease all the way to its two per cent target as it gauges when it might begin discussing cuts to its benchmark interest rate.
The central bank’s preferred measures of core inflation also eased in January.
The soft January inflation print comes after a surprisingly robust jobs report for the same month, which saw the unemployment rate tick down and wage growth remain strong.
Porter said Tuesday that the Bank of Canada “will likely remain cautious” in the face of the resilient labour market and core inflation holding above three per cent.
He added that the latest inflation data “makes rate cuts much more plausible in the coming months,” but noted BMO is holding to its call for a first rate cut in June.
Money markets on Tuesday raised the odds of a rate cut in April to 58 per cent, according to Reuters, up from 33 per cent before the latest inflation figures.
Amid signs of progress elsewhere in the inflation fight, housing costs are continuing to plague consumers.
Shelter inflation accelerated to 6.2 per cent in January, up from 6.0 per cent the month previous, as rising rents and mortgage interest costs continue to put pressure on households.
RSM Canada economist Tu Nguyen noted Tuesday that, stripping out the shelter component, annual inflation would be back at 1.5 per cent.
“Monetary policy has basically done its job,” she said in a statement.
Nguyen also noted that shelter costs will likely rise no matter what the Bank of Canada does: a rate hold keeps rents and mortgage pressure high while cuts spur activity in the housing market. She said a rate hold in March is a “given” but the central bank ought to consider an April cut to give the economy room to recover.
More to come.
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