Drop below 3% could prompt central bank to cut rate earlier
Canada’s inflation rate slowed to 2.9 per cent in January, marking the first time since June that it has fallen within the Bank of Canada‘s target range of one to three per cent.
The deceleration, from a rate of 3.4 per cent in December, was sharper than the 3.3 per cent reading expected by economists and the 3.2 per cent mark forecast by the central bank itself.
Article content
Statistics Canada said the decline in the pace of inflation was mostly because of a year-over-year decline in gasoline prices.
Advertisement 2
Article content
Excluding gasoline, the consumer price index grew by only 3.2 per cent in January, down from 3.5 per cent in December, it said.
“There is a lot to like in today’s inflation release,” said Randall Bartlett, senior director of Canadian Economics at Desjardins.
Among the positive signs was an easing in food inflation, with food prices growing just 0.1 per cent from December, the weakest month-over-month increase since March 2021.
While still elevated, the year-over-year increase in grocery prices fell to 3.4 per cent in January compared with 4.7 per cent in December, putting downward pressure on the all-items CPI.
“The effect of past rate hikes feed into consumer prices persistently with a lag,” Royal Bank of Canada economist Abbey Xu said.
Olivia Cross, North America economist at Capital Economics, said the Bank of Canada will be pleased with January’s inflation report, and not just because the headline rate slowed more than expected.
The central bank’s core measures of inflation, which strip out volatility in prices, also fell in January. CPI-trim and CPI-median clocked in below expectations at 3.4 per cent and 3.3 per cent year-over-year growth, respectively.
Top Stories
Article content
Advertisement 3
Article content
CIBC economist Andrew Grantham noted that discretionary spending was slipping and the drop in demand finally appears to be affecting prices.
Conference Board of Canada researcher Kiefer Van Mulligen noted survey evidence from the Bank of Canada that shows consumers have pared back their price growth expectations for many goods, but many expect price growth for specific services, including rent, entertainment and meals at restaurants, to remain elevated.
“This fits with consumers’ recent experience,” he said.
Lower prices for airfares and travel tours also contributed to the headline deceleration. Prices for airfares fell 14.3 per cent in January, compared with a 9.7 per cent decline in December on a year-over-year basis.
Airfares typically decline in January as heightened holiday demand subsides, the statistics agency said. On a monthly basis, prices fell 23.7 per cent in January compared with a 31.1 per cent gain in December.
“That is a positive sign for the Bank of Canada, and will have financial markets pulling forward expectations for a first interest rate cut today, which we see being delivered in June,” said Grantham.
Advertisement 4
Article content
Tuesday’s reading will be the last inflation report before the Bank of Canada’s next rate decision on March 6. The central bank is widely expected to hold its policy rate steady at five per cent with cuts to begin by mid-year.
RBC’s Xu said the most likely path for inflation going forward is still lower with per-capita GDP and consumer spending continuing to decline.
The strong start to 2024 for job markets gives the central bank more leeway to wait for firmer signs that inflation is getting back under control before pivoting to interest rate cuts, she said.
The economist doesn’t believe policy makers should be in a rush to start cutting.
“As of now, our base case assumes the BoC starts to lower interest rates around mid-year,” she said.
After Tuesday’s data, markets pulled forward their bets on the timing of the first interest rate cut, putting almost even odds on the April meeting, up from about 25 per cent previously.
Additional reporting by Bloomberg.
• Email: dpaglinawan@postmedia.com
Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.
Article content
TORONTO – A 21-year-old man is dead after what police are describing as an “interaction” with officers during the execution of a search warrant in Toronto.
York Regional Police say their officers were executing a search warrant in the area of Evans Avenue and Sherway Gardens Road at approximately 5 a.m. Monday.
Police say officers had an “interaction” with a man.
They say a 21-year-old man suffered life-threatening injuries and was taken to hospital.
Police say the man was pronounced dead there.
Ontario’s Special Investigations Unit is investigating.
The watchdog agency investigates the conduct of police officers that may have resulted in death, serious injury, sexual assault and/or discharge of a firearm at a person.
This report by The Canadian Press was first published Sept. 16, 2024.
The Canadian Press. All rights reserved.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
The Canadian Press. All rights reserved.
The head of a group that helps homeless people in Saint John, N.B., says it is mourning the death of a 58-year-old man whose body was found in an encampment over the weekend.
Johanne McCullough of Street Team Saint John says John Surette was known for his kindness and for taking care of people around him.
The Saint John Police Force say Surette’s body was found in a tent near Paradise Row in the north end of the city Saturday morning.
Investigators say the circumstances of the death are not considered criminal in nature and an autopsy has been scheduled.
Surrette was found not far from where three people died last winter in two separate tent fires.
McCullough says the community will remember Surrette for his helpfulness and generosity.
This report by The Canadian Press was first published Sept. 16, 2024.
The Canadian Press. All rights reserved.
National housing market in ‘holding pattern’ as buyers patient for lower rates: CREA
Verdict expected in rape trial for former military leader Haydn Edmundson
In the news today: Parliament resumes under precarious conditions
Voters head to the polls for byelections in Montreal and Winnipeg
Next phase of federal foreign interference inquiry to begin today in Ottawa
MPs return to Ottawa for what promises to be a boisterous sitting
Feds wary of back-to-work legislation despite employer demands: labour experts
Emir of Qatar to visit Ottawa on what will be his first official trip to Canada
Comments