Canada’s annual inflation rate slowed to 2.9 per cent in January, mainly due to lower gas prices, Statistics Canada said Tuesday.
Economists had expected interest rates to be 3.3%.
Gasoline prices rose to 3.4% in December due to what economists call the base year effect (the effect of comparing prices in a particular month with the same month in the previous year). It fell by 4% compared to the previous year. ).
Core inflation, which excludes gasoline and other volatile sectors, was 3.2%.
However, mortgage interest rates continue to be the biggest factor driving inflation, at 27.4% year-on-year, while rental price growth has reached 7.9%.
“Housing is certainly the biggest part of most people’s budgets and overall inflation,” said RSM Canada economist Thu Nguyen. “Over the past year, we’ve seen prices rise significantly for both renters and homeowners.”
Bank of Canada Governor Tiff Macklem has mentioned the rise in home prices several times recently.
“Housing affordability is a critical issue in Canada, but it’s not something that can be solved by raising or lowering interest rates,” he said in a speech earlier this month.
“It seems like no matter what the banks do, home prices will continue to rise,” Nguyen said. “If they continue to hold, it will mean higher mortgage interest payments for homeowners who are due to renew in the coming months.
“If prices start to come down, obviously potential buyers who have been sitting on the sidelines will come back in, causing an overall price increase,” she continued, adding that rent prices are rising amid population growth and economic crisis. He added that he would continue to do so. Housing shortage.
Economists still expect first rate cut in June
“This is a much milder-than-expected reading, especially given the surprise on the high side seen in last week’s series of U.S. inflation reports,” Douglas Porter, chief economist at Bank of Montreal, said in a note.
“Importantly, January can set the tone for inflation as businesses often have the opportunity to adjust their annual prices this month. And this year there is little sign that January will rise significantly. There wasn’t,” he added.
The Bank of Canada’s efforts to curb inflation have continued since March 2022, when it first raised its key interest rate. The central bank’s goal is to bring inflation down to its 2% target.
Canada’s annual inflation rate slowed to 2.9 per cent in January, largely due to lower gas prices, Statistics Canada data shows. The inflation rate in December was 3.4%.
Since then, the Bank of Canada has raised interest rates 10 times, but has kept them at 5% since July. Economists expect the central bank to start cutting interest rates this summer.
Porter said the Bank of Canada is likely to remain cautious as wage growth and service costs remained strong in January and core inflation remains above 3 per cent.
“However, today’s results clearly make rate cuts more likely in the coming months, and we remain satisfied with the Bank’s assertion that: [of Canada] Trimming begins [interest rates] In June,” he wrote.
The pace of increase in food prices is slowing
“The other good news is the decline in food items and slower growth in food prices,” Nguyen said.
According to the Consumer Price Index report, food prices are still rising, but the rate of price growth slowed in January.
Meat, dairy, fresh fruit and baked goods were among the basket items that helped bring food inflation down to 3.4%, with prices for soup, bacon, shrimp and shrimp falling in January.
Airfares for consumers were also much cheaper, making for a typical January as the year-end rush subsided. However, since the autumn promotion has ended, the cost of mobile phone service is higher than last month.
“I think consumer spending will slow down in the future, even in the service sector, because people don’t have as much room in their budgets.”[s] I’m going to cut it now,” Nguyen said.
