Canada’s inflation continued to decelerate on a year-ago basis for the seventh month in a row as the Bank of Canada’s rate-hike campaign to slow down the economy showed more results.
The consumer price index rose by 5.9% from 12 months ago in January, down from 6.3% in December, and lower than the market’s forecast at 6.1%.
Still, the Bank of Canada faces a long road to get inflation back to the central bank’s target rate of 2%.
The monthly change in inflation bounced back to an increase of 0.5% in January after falling by 0.6% previously on a non-seasonally adjusted basis. After controlling for seasonal factors, inflation rose by 0.3% on the month.
While the yearly series has shown that inflation has fallen quickly, the monthly series suggests a more nuanced story.
The core median and core trim series—which strips away more volatile components like food and energy—slowed in January to 5.0% and 5.1% on a year-ago basis yet remained above the central bank’s policy rate of 4.5%.
That certainly raises the question of whether monetary policy is restrictive enough to reduce inflation because it should take more time for the yearly inflation rate, especially the core rate, to move to below 4.5%.
While we don’t think January’s data is reason for more rate hikes, if inflation continues to rebound while the labor market keeps showing strong job gains, there is a chance that the central bank might surprise the market as it has several times in the past year.
Inside the data
Food prices drove most of the gains in January’s inflation, rising by 10.4% from a year ago and by 1.7% from a month ago.
Gasoline prices also made a comeback, rising by 4.7% from a month ago after plunging by 13.1% in December.
The shelter component continued to decelerate, rising by 0.1% from a month ago following a 0.4% increase in December. On a year-ago basis, shelter prices slowed to a 6.6% increase in January, down from 7.0% in December.