Lower gas prices help Canada’s inflation rate slow to 1.4% in January

Lower prices at the pump helped the country’s annual inflation rate decelerate last month to its slowest pace in over a year, Statistics Canada said Wednesday said in a new report.

The inflation rate of 1.4 per cent in January — the weakest price growth since the fall of 2017 — followed the two per cent reading for December, the agency said.

Low gas prices are helping to temper the rate of inflation. Photo by Jonathan Petersson via Unsplash.
Low gas prices are helping to temper the rate of inflation. Photo by Jonathan Petersson via Unsplash.

Economists, on average, had expected an increase of 1.5 per cent for January, according to Thomson Reuters Eikon.

Across the country, Canadians paid 14.2 per cent less last month for gasoline compared with a year earlier, 9.2 per cent less for computer devices and 3.2 per cent less for traveller accommodation. The report also said prices for fuel oil fell 3.3 per cent and natural gas dropped 2.3 per cent.

Excluding gasoline, the agency said inflation was 2.1 per cent last month.

The weaker prices in categories like energy offset stronger growth in other areas. Year-over-year prices last month were 13.2 per cent higher for fresh vegetables, 7.8 per cent higher for mortgage interest costs and 5.3 per cent higher at restaurants.

The report also said the average of the Bank of Canada’s three core inflation readings, which omit more-volatile items like gas, held steady at 1.9 per cent in January for a third straight month.

The Bank of Canada has been expecting inflation to edge down below its ideal two per cent target and to stay there throughout 2019, mostly because of lower gas prices.

The central bank, which aims to keep inflation between one and three per cent, can raise its benchmark interest rate as a way to keep inflation from climbing too high.

The bank will make a policy decision next Wednesday, though it’s widely expected to leave the interest rate unchanged at 1.75 per cent.

“I don’t think this report will affect the Bank of Canada’s decision,” Alicia Macdonald, principal economist for The Conference Board of Canada, said of Wednesday’s consumer price index.

“We think that they’re going to stay on hold. What they’re really looking at is how economic growth will unfold over the next couple of months and what that means for future inflation.”

Moving forward, Macdonald said she expects the persistent weakness of gas prices to weigh on the next consumer price index reading for February.

Royce Mendes of CIBC World Markets wrote in a research note Wednesday that the central bank will look past the inflation numbers, especially with core, or underlying, inflation close to the two per cent target.

“The Bank of Canada appears well positioned to stay on the sidelines for at least the first half of the year,” Mendes said.

Last week, governor Stephen Poloz said the interest rate’s expected upward path to its likely destination range of between 2.5 and 3.5 per cent is “highly uncertain.”

The bank, he said, is closely watching several important uncertainties.

Poloz highlighted the unknown evolution of the impacts of higher interest rates on heavily indebted Canadians, how housing markets adjust to higher borrowing costs and stricter mortgage guidelines, whether business investment picks up its pace and the uncertain global trade environment.

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