OTTAWA (Reuters) – Canada’s annual inflation rate cooled much more than expected to 2.9% in January, largely on lower gas prices, while core inflation measures dropped to their lowest levels in more than 2 years, data showed on Tuesday.
Analysts polled by Reuters had forecast inflation to tick down to 3.3% from 3.4% in December. At 2.9%, headline inflation rate is back in the Bank of Canada’s 1%-3% control range for the first time since June 2023.
Month-over-month, the consumer price index was unchanged, compared with a forecast of a 0.4% rise.
Two of the Bank of Canada’s (BoC) three core measures of underlying inflation also edged down. CPI-median slowed to 3.3%, lowest since November 2021, while CPI-trim decreased to 3.4%, lowest since July 2021.
While the central bank has said single data points are not enough to sway its policy decisions, the cooldown in prices could expedite discussions about a rate cut.
The BoC has projected headline inflation to remain around 3% in the first half of 2024, before cooling down to 2.5% by the end of the year.
The BoC kept its key overnight rate at 5% in January and said that while underlying inflation was still a concern, the bank’s focus is shifting to when to cut borrowing costs rather than whether to hike again.
Before its last announcement in January, members of the bank’s policy-setting governing council were concerned about cutting borrowing costs too soon, especially as shelter prices continues to keep overall inflation elevated. nL1N3ES30B
Shelter price inflation, which includes mortgage interest costs, rent and components related to house prices, accelerated to 6.2% in January from 6% in December.
The largest contributor to headline deceleration in Janaury was lower gasoline prices, which fell 4% on an annual basis, Statistics Canada said. Month-over-month, gasoline prices fell 0.9%, marking the fifth consecutive monthly decrease.
Prices of store-bought food rose 3.4% – the slowest pace since August 2021 – also putting downward pressure on headline inflation.
Excluding volatile food and energy, prices rose 3.1% compared with a 3.4% rise in December.
The bank’s next rate announcement is on March 6, when the bank is expected to keep its key policy rate on hold at a 22-year high of 5%.
A bigger than expected job gain in January and an early estimate of a rebound in GDP growth in the last quarter of 2023 had played a part in lowering expectations of rate cuts.
Before inflation data, money markets were betting for at least 50 basis points decrease in 2024 from 125 basis points in early January.
(Reporting by Ismail Shakil in Ottawa; Editing by Dale Smith)
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