Canada’s inflation rate slowed to 2.9% in January as gas prices fell

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Canada’s annual inflation rate slowed to 2.9 per cent in January, mostly due to a deceleration in the price of gas, Statistics Canada said Tuesday.

Economists were expecting the rate to come in at 3.3 per cent.

Gas prices fell four per cent year over year in January after driving headline inflation up to 3.4 per cent in December, due to what economists call a base-year effect (the impact of comparing prices in a given month to the same month a year earlier).

The core inflation rate, which strips away gasoline and other volatile sectors, was 3.2 per cent.

However, mortgage interest costs continued to be the No. 1 driver of inflation, at a year-over-year rate of 27.4 per cent, while rent price growth ticked up to 7.9 per cent.

“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,” wrote Douglas Porter, chief economist at Bank of Montreal, in a note.

“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,” he added.

WATCH | CBC’s Nisha Patel breaks down January’s inflation numbers: 

Canadian inflation slows to 2.9% in January, down from 3.4%

Canada’s annual inflation rate slowed to 2.9 per cent in January, mostly due to a deceleration in the price of gas, according to data from Statistics Canada. The inflation rate was 3.4 per cent in December.

The Bank of Canada’s efforts to cool inflation have been ongoing since it first raised its key interest rate in March 2022. The central bank’s goal is to bring inflation down to its two per cent target.

Since then, the Bank of Canada has raised the interest rate 10 times, though it has held the rate steady at five per cent since July. Economists expect the bank will start cutting rates this summer.

The Bank of Canada will likely remain cautious as wage growth and the cost of services remained firm in January, and because core inflation is still above three per cent, Porter said.

“But clearly today’s result makes rate cuts much more plausible in coming months, and we remain comfortable with our call that the Bank [of Canada] will begin trimming [interest rates] in June,” he wrote.

Grocery prices rising at slower pace

A view of produce on grocery store shelves, with bags of oranges in the foreground, and bags of lettuce further along the aisle.
While groceries are still getting more expensive, prices grew at a slower rate in January, Statscan said. (Bryan Eneas/CBC)

While groceries are still getting more expensive, prices grew at a slower rate in January, Statistics Canada said.

Meat, dairy products, fresh fruit and baked goods were among the basket items that helped bring the food inflation rate down to 3.4 per cent, while the price of soup, bacon, shrimps and prawns declined in January.

Consumers also paid much less for airfare — typical of January, as the holiday rush subsides. But they paid more for cell services month over month, as price promotions from the fall months ended.



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