Canadian annual inflation rate 2.9% in January, down from December: Statistics Canada

The Consumer Price Index (CPI) rose 2.9% on a year-over-year basis in January, following a 3.4% gain in December. The largest contributor to headline deceleration was lower year-over-year prices for gasoline in January (-4.0%) compared with December (+1.4%). Excluding gasoline, headline CPI slowed to 3.2% year over year in January, down from the 3.5% growth in December, reported Statistics Canada on Tuesday.

Gustavo Fring

Price growth for food purchased from stores slowed year over year in January (+3.4%) compared with December (+4.7%), putting downward pressure on the all-items CPI. Lower prices for airfares and travel tours also contributed to the headline deceleration, it said.

On a monthly basis, the CPI was unchanged in January, following a 0.3% decline in December. On a seasonally adjusted monthly basis, the CPI fell 0.1% in January, the first decline since May 2020, added StatsCan.

“Year over year, gasoline prices fell 4.0% in January following a 1.4% increase in December, largely due to a base-year effect. In January 2023, prices at the pump increased amid refinery closures in the southwestern United States following Winter Storm Elliott,” said the federal agency.

“On a monthly basis, prices for gasoline fell in January 2024 (-0.9%) for the fifth consecutive month. Lower gas prices in Manitoba (-14.1%) contributed to the national decline, following a temporary suspension of the provincial gas tax.

“While grocery prices remained elevated, their growth slowed year over year in January (+3.4%) compared with December (+4.7%).

“The deceleration of grocery prices was broad-based, with products such as meat (+2.8%), other food preparations (+4.2%), dairy products (+1.5%), bakery products (+4.0%) and fresh fruit (+1.9%) contributing to the slower year-over-year price growth in January. Other food items, such as soup (-2.1%), bacon (-8.4%) and shrimps and prawns (-3.4%) had year-over-year price declines in January.”

Leslie Preston, Managing Director & Senior Economist with TD Economics, said Canadians got a bit better news on the inflation front in January, with headline inflation dipping a toe below 3%, and the Bank of Canada’s (BoC) preferred core measures also making progress.

“With various discretionary items showing signs of larger-than normal seasonal discounting, the weak consumer demand that has prevailed in Canada for some time may finally be starting to show up in prices. Shelter inflation remains a thorn in the BoC’s side. As discussed in a report out soon, shelter inflation has become the biggest hurdle preventing the Bank from cutting interest rates,” she said.

“The BoC is likely to be pleased with the progress on inflation to start the year, but inflation remains too far above target to start cutting rates. We expect that price pressures will continue to come off the boil in the coming months, and that the Bank will be ready to cut rates come the spring.”

Douglas Porter, Chief Economist with BMO Economics, said: “There is little debate on this one—it’s a much milder reading than expected, especially given the high-side surprise seen in last week’s round of U.S. inflation reports, a nice contrast. Importantly, 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. Just as an example, both furniture and appliance prices were up in the month, but both are down from a year ago, as goods inflation fades. While no doubt welcome news, the Bank of Canada will likely remain cautious in the face of still-strong wage gains, firm services prices, and the reality that core inflation is still holding above 3%. But clearly today’s result makes rate cuts much more plausible in coming months, and we remain comfortable with our call that the Bank will begin trimming in June.”

Mario Toneguzzi