Food prices in Canada declined for the first time since May 2017, although overall inflation in January rose slightly compared to December, Statistics Canada said.
Consumer prices in Canada rose slightly in January, defying analyst expectations.
Statistics Canada said Tuesday that the annual pace of inflation rose to 1.9 per cent last month, up one-tenth of a percentage point from December. However, inflation remained below the Bank of Canada’s target of two per cent.
Statistics Canada said the slight rise in inflation was led largely by Canadians paying more for energy in January. Energy prices rose 5.3 per cent in January following a one per cent increase in December, driven by higher prices for gasoline and natural gas.
However, the stark rise in energy prices was offset by the cooling effect of the GST/HST holiday.
The cost of transportation rose from 2.3 per cent in December to 3.4 per cent in January, while the cost of shelter remained steady at 4.5 per cent.
However, there was good news for Canadians who ate out in January. Restaurant prices saw a record decline in January, with a 5.1 per cent decline. This led to a full percentage point drop in overall food prices.
Get daily National news
In December, food prices rose by 0.6 per cent. In January, they declined by the same amount – the first drop in food prices since May 2017.
Canadians also paid less for alcohol in January. In December, the prices of alcoholic beverages, tobacco products and recreational cannabis rose by 0.7 per cent. In January, they dropped by a full percentage point.
Tu Nguyen, economist at RSM Canada, said this was largely due to the tax holiday.
She said that inflation staying below the target rate of two per cent for six months in a row was “evidence that price stability has been restored and maintained. However, core inflation measures have stayed stubborn, which indicates some inflationary pressures remain.”
Nguyen said whether the Bank of Canada cuts interest rates in March will depend on two factors – the unemployment rate and Donald Trump’s threatened broad-based tariffs on Canada.
“If tariffs do not materialize within the next month, the Bank of Canada might pause for a month as the job markets have held up thus far with healthy job gains. But if tariffs and retaliation were implemented, another cut is warranted,” she said on Tuesday.
Royal Bank of Canada economists Nathan Janzen and Claire Fan had said Friday the GST/HST holiday, which lasted from December 9 to February 15, could affect the inflation readings for January.
“The tax holiday will continue to muddy inflation readings until March when we can get a cleaner read of the consumer price index that are clear of distortions,” Janzen and Fan said in a report Friday.
The RBC report said price growth continues to be disproportionately impacted by high growth in mortgage interest costs. While the inflation figures on Tuesday remained below the Bank of Canada’s two per cent target, the central bank warned that retaliatory tariffs by Canada and other nations against the U.S. could also cause a period of inflation.
“While retaliatory tariffs would likely represent a one-time increase in the level of prices, members noted that, given the size of the shock, there was a risk that higher import prices could feed into other prices,” the report said.
“If this leads to an increase in inflation expectations, it could generate higher ongoing inflation,” a Bank of Canada report said last week.
Comments