Canada’s consumer price index (CPI) reached 1.9 per cent in January thanks to higher gasoline prices, which were offset by the recently concluded tax holiday. Excluding gasoline, the CPI rose to 1.7 per cent.
Inflation has been at or below the Bank of Canada’s 2 per cent target for six months in a row, evidence that price stability has been restored and maintained. However, core inflation measures remain stubborn, which indicates some inflationary pressures remain.
With inflation largely stable, the Bank of Canada’s next move would depend largely on jobs data. If tariffs do not materialize within the next month, the Bank of Canada might pause for a meeting as the job markets have held up thus far with healthy job gains. But if tariffs and retaliation were implemented, another cut is warranted.
The break on goods and services tax (GST) and harmonized sales tax (HST) played a major role in dampening inflation and led to restaurant prices decreasing by 5.1 per cent, prices for alcoholic beverages dropping 3.6 per cent and prices for toys, games, and hobbies dropping 6.8 per cent.
These decreases will be reversed in the upcoming months as the tax holiday ended on Feb. 15. January was the only full month in which the tax break was in effect — which made its CPI date the most affected by the tax break.
Shelter prices are also showing mitigation as prior rate cuts helped address the price pressures from mortgage payments. At the same time, lower demand led to decreasing rents in some cities. As the housing market heats up in the spring, shelter will continue to be a key contributor to the consumer price index.
The other increase is from prices of vehicles. Prices for new cars rose 2.3 per cent in January, while prices for used vehicles dropped 3.4 per cent.
Part of the increase in January’s headline inflation stems from higher gasoline prices due to unfavourable base effects. Prices for gasoline rose 8.6 per cent, while natural gas prices rose 4.8 per cent.
Since gasoline prices could fluctuate wildly from month to month, this would not factor in the Bank of Canada’s rate decision.
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