Canadian inflation slowed down to 5.9% – it could keep interest rates unchanged so far

In January, Canadian consumer price pressures eased slightly, which means the central bank may keep its key lending rate unchanged in March even amid a strong job market report.

This slowdown suggests policymakers have increased interest rates high enough in order to restrain price growth and an announced pause in an aggressive rate-hiking cycle is quite possible.

According to Statistics Canada, the consumer price index was up by 5.9% from January 2023, which is a smaller increase than the 6.1% gain predicted by economists in a Bloomberg poll and lower than December’s 6.3%. The monthly comparison shows a 0.5% index increase, while it was expected to reach 0.7%.

Although the overall inflation showed a slower pace partially due to a base-year effect, prices for cellular services and passenger cars were the main drivers of the deceleration. Higher prices for gasoline, meat and interest costs saw the largest increases.

Last month, gasoline prices went up by 2.9% annually, food prices rose by 10.4%, and the mortgage interest cost index sky-rocketed by 21.2%, marking the largest hike since September 1982. Rent was up by 5.8%.

“Such results point to a more disinflationary trend at the start of this year, and it will definitely comfort the BoC before the future March decision,” – Dominique Lapointe, director of macro strategy at Manulife Investment Management, noted.

Inflation in services, which is one of the main categories watched by policymakers, slowed down to 5.3%, following 5.6% seen in December.

The report suggests that a 4.25% rate increase in 11 months is beginning to show itself, although inflation is still much higher than the central bank’s 2% target. In addition to it, the numbers support forecasts of inflation’s further easing in 2023, letting the BoC keep the rate at 4.5% at its next meeting on March 8.