The Consumer Price Index slowed more than expected in January to 2.9%, after increasing 3.4% in December and is now within the Bank of Canada’s target range.
This is the first time since June 2023 that the inflation rate has returned to the range of 1% to 3%, which the central bank is targeting. It is also a more marked slowdown than that expected by observers, who were counting on 3.3% for the first reading of the CPI of the year.
The drop in gasoline prices recorded in January, for a fifth consecutive month, contributed to the decline in overall inflation. The best news from the January report, however, was a widespread slowdown in price growth at grocery stores, which moderated CPI growth. After increasing by 4.7% in December, the price of food increased by 3.4% in January.
Statistics Canada even points to price drops for certain foods such as soup (-2.1%), bacon (-8.4%) and shrimp (-3.4%).
Airfares are down, but the price of cell phone service increased in January after holiday promotions.
The cost of mortgage interest and the cost of rent remain the factors that have contributed the most to fueling inflation over the last twelve months. It is the rise in interest rates, for which the central bank is responsible, but also the increase in rent prices attributable to the dizzying increase in the population which are the cause, underline the economists of the National Bank, Matthieu Arseneau and Alexandra Ducharme.
On a monthly basis, the CPI remained unchanged in January, after falling 0.3% in December.
In Quebec, the annual rate of price increases increased from 4% in December, the highest rate in Canada, to 3.3% in January. Price increases are now highest in Alberta, at 3.4%.
Prices are rising less quickly, but the Bank of Canada’s return to the 2% target is slow and could delay the expected drop in interest rates. The core inflation measures the central bank monitors have slowed, but remain elevated at 3.3% and 3.4%.
The cost of mortgage interest and the cost of rent remain the factors that have contributed the most to fueling inflation over the last twelve months.
The next central bank rate decision is March 6. Governor Tiff Macklem said recently that we don’t necessarily have to wait for inflation to return to target before starting to cut interest rates if the economic slowdown continues.
However, the job market continues to show resilience and the unemployment rate even fell in January for the first time since December 2022, underline economists at the Royal Bank. This gives the Bank of Canada more time to ensure that inflation is under control before initiating a rate cut, they believe.
More and more economists are no longer forecasting a reduction in the key rate in the spring, but in the summer, at the earliest.
reference: www.lapresse.ca