Canadian inflation fuelled by gas prices

A surge in gasoline prices helped push Canada’s annual inflation rate well beyond expectations in January to 2.1%, an increase that coincided with the implementation of new carbon-pricing policies in Ontario and Alberta.

Statistics Canada said Friday the 6.3% increase in transportation costs was the main contributor to the higher inflation rate, with gas prices experiencing a 20.6% boost across the country compared to the year before.

The overall inflation reading last month was stronger than December’s rate of 1.5%, the agency’s latest consumer price index said. However, excluding gasoline, the January inflation rate was also 1.5%.

The report also found that year-over-year inflation rates were higher in every province last month compared to a year earlier.

Nick Exarhos, director at CIBC World Markets, says in a research note, “Canadian inflation perked up in January, something we’re going to see more of in 2017 as we lap weak year-ago gasoline prices.”

In Alberta, the annual inflation rate hit 2.5% last month after an increase of 1% in December. Gas prices in Alberta climbed 33.9 per cent last month, a gain that Statistics Canada says was partly attributable to a new carbon levy in the province.

The agency said Ontario, which introduced a cap-and-trade program in January, saw a 20.4% year-over-year increase last month in gas prices.

Overall, a consensus of economists had predicted 1.6% inflation for January, according to Thomson Reuters.

Statistics Canada says consumers paid 2.1% less for food last month compared to a year earlier.

The agency said the Bank of Canada’s three preferred measures for core inflation saw increases last month of 1.3%, 1.7% and 1.9%.

Still, today’s inflation numbers won’t influence the Bank of Canada as it makes its next rate decision, says Derek Holt, vice-president and head of Capital Markets Economics, in a report. He predicts, “The [BoC] will likely fully look through the headline spike in inflation for three reasons.” One is the main driver of the increase was gas prices, while the others are “two of the three new core CPI measures trended lower again” and “seasonally adjusted month-ago CPI subcomponents were rather weak, ex[cluding] energy components.”

Staff, with files from The Canadian Press

The Canadian Press is a national news agency headquartered in Toronto and founded in 1917.