Consumer prices rose 0.5% in January, coming in below consensus. The annual rate of inflation slowed to 5.9% from 6.3% in December. It was the first annual rate of price growth under 6% since February of last year.
Higher gasoline prices contributed the most to the month-over-month increase, followed by a rise in mortgage interest costs and meat prices.
Cellular services prices fell 7.9% year-over-year as some Boxing Day sales remained available in January.
While the mortgage interest costs index continued to rise – up 21.2% in January – we saw a slowing in the year-over-year increase in shelter prices to 6.6%, following a 7.0% increase in December. With the cooling of the housing market, we saw an easing in the growth in home replacement costs (+4.3%) and other owned accommodation expenses (+1.1%).
On a 12-month basis, the Bank of Canada’s (BoC) trim and median inflation measures – which strip out volatile components of the core inflation measure – edged lower to reach 5.1% and 5.0%, respectively. In three-month annualized terms, both measures eased to sit at 3.5%.
The BoC uses three measures of core inflation because no single measure is best. Depending on the circumstances, one may be a better indicator of inflationary pressure.
What to watch
Inflation is still a long way from 2%, but we have been seeing an easing in multiple measures of core inflation. While we are unlikely to see a smooth path towards lower inflation, the January inflation report is positive as it gives the Bank of Canada some offsetting data to the strong employment numbers from earlier this month, which suggested that more work might be necessary to curb inflation. This inflation data, combined with signs of easing wage gains in 2023, suggest that the rapid rise in interest rates is having the desired effect.
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