Canada’s annual inflation rate accelerated to 5.1% in January, notching a fresh 30-year high, Statistics Canada said on Wednesday.
Analysts in a Reuters poll had forecast annual inflation remaining at 4.8% in January.
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Market reaction: CAD/
COMMENTARY
DEREK HOLT, VICE PRESIDENT OF CAPITAL MARKETS ECONOMICS, SCOTIABANK
“It’s hotter than expected … To me this suggests that the economy is moving on from Omicron’s effects. The restrictions may have added a little bit to the inflationary pressures. But there is certainly no slowdown. In fact, at the margin as we eliminate capacity we are dealing with greater upside to inflationary pressures.”
SIMON HARVEY, FX MARKET ANALYST FOR MONEX EUROPE AND MONEX CANADA
“This morning’s CPI data showed headline inflation hit the BoC’s Q1 projection, 5.1%, in just the first month of the quarter. While this is quite telling, especially as economist expectations were for a more limited uptick in inflation, the corresponding market reaction has been fairly muted.
“Despite the core and headline measures continuing to tick upwards to multi-decade highs, services inflation ex-shelter actually fell in January and measures of how broad inflation pressures are in the Canadian economy continue to track below H2 2021 averages.”
ANDREW GRANTHAM, SENIOR ECONOMIST, CIBC CAPITAL MARKETS
“Unfortunately, this may not be the peak for inflation, with further evidence of building price pressures so far in February. With gasoline prices rising further in the first half of the month, a big dairy price increase hitting at the start of February, and the possibility of supply chain issues stemming from recent protests, headline inflation could push further above the 5% mark before finally starting to moderate thereafter.”
ROYCE MENDES, HEAD OF MACRO STRATEGY AT DESJARDINS GROUP
“Canadian consumer prices surged higher in January. Prices rose 0.9% month-over-month not-seasonally adjusted, which saw the annual rate of inflation accelerate to 5.1%. That easily surpassed the consensus forecast, and even our above-consensus call. Rising fuel costs were again a major contributor to the monthly gain, as were food and shelter prices. Increasing grocery bills is likely a trend that continued into February, with protests blocking key trade arteries for food. On shelter, the rising price of homes is now filtering into CPI more clearly.
“With energy prices continuing to rise, inflation is set to accelerate even further and is unlikely to materially slow down before April. Still, that’s not enough to justify a 50bp hike by the Bank of Canada in March, nor the seven rate hikes priced in to markets for this year. It’s clear that central bankers need to tighten policy, but high household debt levels will temper the Bank of Canada’s aggressiveness.
“Markets seemed positioned for a print hotter than the consensus given last week’s US CPI surprise and this morning’s UK inflation numbers. So some of the immediate market reaction is fading.”
STEPHEN BROWN, SENIOR CANADA ECONOMIST AT CAPITAL ECONOMICS
“Consumer price inflation rose by more than expected at the start of 2022 and the breakdown suggests that inflationary pressures are broadening, which adds to the pressure for the Bank of Canada to begin tightening policy next month.
“A 0.6% m/m seasonally adjusted rise in consumer prices caused headline inflation to reach a 31-year high of 5.1% in January, in contrast to the consensus estimate that it would be unchanged at 4.8%. The increase in prices was broad-based; shelter prices increased by 0.6% m/m as housing rents continued to recover, food prices rose by 0.5% m/m as supply chain disruptions and unfavourable growing conditions pushed up fresh meat and vegetable prices, and transportation prices rose by a further 0.7% m/m, as gasoline prices picked up again. There were strong rises in each of the three core inflation measures, with CPI-common increasing by 0.2%-points to 13-year high of 2.3%, while CPI-trim and CPI-median both jumped by 0.3%-points to 4.0% and 3.3%, respectively.
“As consumer prices increased by just 0.1% m/m in February and March of last year, unfavourable base effects mean that headline inflation will almost certainly rise further over the rest of the first quarter. We expect headline inflation to then fall sharply over the rest of the year, as goods and energy inflation ease but, with wage pressures growing, core inflation is likely to remain above 2% throughout the next couple of years.”
(Reporting by Fergal Smith,; Editing by Steve Scherer)
