Canada's inflation rate slowed to 2.9% in January as gas prices fell
Jenna Benchetrit | CBC News | Posted: February 20, 2024 1:38 PM | Last Updated: February 21
Mortgage interest costs continued to be No. 1 driver of inflation
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).
Excluding gasoline, the consumer price index came in at 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.
"Housing is certainly the biggest part of most people's budget and of inflation overall," said Tu Nguyen, an economist with RSM Canada. "We have seen prices for both renters and homeowners go up significantly over the past year."
Bank of Canada governor Tiff Macklem has addressed the high cost of housing several times recently.
"Housing affordability is a significant problem in Canada but not one that can be fixed by raising or lowering interest rates," he said in a speech earlier this month.
"It seems like no matter what the bank does, housing prices will continue to go up," Nguyen said. "If they continue holding, that means higher mortgage interest payments for homeowners who are going to be renewing in the upcoming months.
"If they begin cutting, of course the prospective buyers who have been sitting on the sidelines are going to jump back in, causing prices to go up overall," she continued, adding that rent prices will continue to go up amid population growth and a housing shortage.
Economists still expecting first rate cut in June
"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.
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.
WATCH | Food prices continue to climb — though at a slower rate:
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
"Another piece of good news was the decline in groceries and that decline in grocery price growth," said Nguyen.
The consumer price index report showed that while groceries are still getting more expensive, prices grew at a slower rate in January. But it's cold comfort for Canadians struggling with food costs who aren't seeing their wages increase.
"Even if inflation is slowing down, it doesn't mean that we haven't already been affected," said Isa Ali in downtown Toronto. "Things are so expensive. Like, I wanted to buy strawberries and that seems like a luxury."
"When you see the cost of produce go down, that's [going to] be a very big indicator that things are better and more affordable, because it's not like our wages are going up."
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.
"I think that consumer spending, even in services, is going to slow in the future because there's just not as much buffer in people's budget[s] now to cut," said Nguyen.
Corrections:- A previous version of this article stated that core inflation rate was 3.2 per cent. In fact, this is the inflation rate when excluding gasoline. February 20, 2024 7:09 PM