Statistics Canada reported Friday that the consumer price index (CPI) rose 1.7 per cent year-over-year in January, a slight cooling from the 1.9 per cent annual increase seen in December.
On a one-month basis, prices in January were up by 0.7 per cent from December.
Both the one-year and monthly inflation figures for January topped the expectations of economists.
Looking at the one-year change in prices, Statistics Canada said consumers paid 3.2 per cent more for transportation in January, following a 4.9 per cent jump increase in December. The year-over-year change in prices for passenger vehicles and gasoline moderated in January compared to December.
Statistics Canada also said food prices were 2.3 per cent higher in January on a year-over-year basis, after rising two per cent in December. The gain marked the largest year-over-year movement in the food price index since April 2016, and was propelled by higher prices for food purchased from restaurants.
Prices for telephone services increased 6.5 per cent on a month-over-month basis in January following drop of more than seven per cent in December, when competitors in the industry aggressively cut prices during pre-Christmas promotions.
BMO Capital Markets senior economist Robert Kavcic pointed out that readings on core inflation, which factor out some of the more volatile elements in the consumer price index, were “well behaved.” The average of three measures of core inflation that are closely watched by the Bank of Canada came in at 1.8 per cent year-over-year in January.
“As the [Bank of Canada] mentioned alongside the January rate hike, ‘the Bank expects CPI inflation to fluctuate in the months ahead as various temporary factors (including gasoline and electricity prices) unwind’,” Kavcic wrote in a commentary.
“Indeed, this report highlights some of those special factors, and also points to core inflation grinding back toward two per cent as economic slack diminishes. While somewhat of an upside surprise, there’s not much here to change our outlook for a cautious, but still biased-to-tighten, Bank of Canada.”
Statistics Canada also pointed out the impact of Ontario’s new minimum wage increase showed in the January inflation. Looking at price increases in the province, the federal government agency said prices for food purchased from restaurants by 4.9 per cent, while prices for child care and housekeeping services gained 9.9 per cent, coinciding with the wage increase.
TD senior economist James Marple said the Bank of Canada “may look through the one-time impact of higher minimum wages, but it cannot ignore the broader evidence of price pressures that are becoming apparent.”
“The firming in core measures in particular, suggests that the strong economic growth that Canada has experienced over the past year is doing its job in pushing inflation toward the bank’s two per cent target,” he wrote in a commentary.
Canada’s central bank has boosted interest rates three times since last summer. Its next rate decision is due on March 7.