Inflation rate dips to 1% in January on cheaper gasoline

Canada's inflation rate dropped to one per cent in January, dragged down by cheaper gasoline.

The consumer price index dropped from 1.5 per cent in December, Statistics Canada said Thursday, the third straight month of decline. 

The one per cent showing is the lowest rate in more than a year.

Driving the drop were gasoline prices, which were 27 per cent lower in January than in the same month a year earlier, marking their lowest point since April 2009.

Stripping out the impact of cheap gasoline, the inflation rate is a lot higher, with Statistics Canada saying prices increased at an annual rate of 2.4 per cent in January — an increase from the previous month's showing of 2.3 per cent.

Indeed, outside of gasoline, lots of items got more expensive in January. For instance, food prices rose 4.6 per cent, the biggest gain since November 2011.

Prices decline out east

Regionally in January, consumer prices in the Atlantic provinces fell, led by P.E.I. which saw a negative inflation rate of –1.9 per cent. (A low inflation rate in that region of Canada at the moment makes sense, considering the CPI basket weight for fuel oil in Atlantic Canada is larger than in the country as a whole.)

In every province outside Atlantic Canada, consumer prices increased, but at a slower annual rate than in January. Ontario posted the highest inflation rate, at 1.6 per cent.

Outside of oil, prices rose by more than what most economists had been expecting — a sign the Bank of Canada might be in less of a hurry to lower rates any more, as they did last month.

As Scotiabank put it in a note to clients, "For now, it supports our view that the Bank of Canada s on hold until [the third quarter] of 2015."

TD Bank agreed that the weak inflation figure makes another rate cut unlikely. \

"Developments that have taken place since the last Bank of Canada meeting last month suggest that another rate cut in March is unlikely," economist Dina Ignjatovic said.