The annual pace of inflation cooled to 1.7% last month—but rising prices underneath the turbulence of this headline number suggest the Bank of Canada is unlikely to veer from its interest-rate hiking path.
A new Statistics Canada report Friday showed that the average of three measures of core inflation, designed to filter out the noise of more-volatile items like gasoline, advanced once again in January to hit 1.8%.
The average of the core readings reached its highest mark since September 2016, the latest consumer price index found.
“You wouldn’t know it from the headline number, but Canadian inflationary pressures are heating up,” said Royce Mendes, director and senior economist for CIBC World Markets, in a research note on Friday.
Still, he predicts the Bank of Canada will be patient with rate hikes. “[…] Even if inflation reaches target and the labour market is running at full employment later in the year, central bankers will still have reason to leave some stimulus in place given that the economy is facing a number of potential headwinds,” he says.
Average core inflation has been on a steady monthly climb since it fell to 1.3% in May 2017. The movement suggests underlying consumer prices have been moving higher due to Canada’s recent economic strength.
As such, the upward momentum of underlying prices will at least catch the attention of the inflation-targeting Bank of Canada, which has said its ideal inflation bull’s-eye is 2%.
The reading likely reinforces expectations that the central bank will continue raising its trend-setting interest rate, which governor Stephen Poloz has already hiked three times since last summer.
The Bank’s next rate announcement is scheduled for March 7, and it has repeatedly stressed it will remain data dependent when considering future rate decisions.
Overall, Statistics Canada’s headline inflation reading of 1.7% for January was weaker compared to a 1.9% result in December and 2.1% in November.
The federal agency said the main downward forces on inflation last month were due to cheaper prices for video and digital equipment, electricity and travel tours.
The report said the primary upward pressure on inflation was driven by higher costs for air transportation, gasoline and restaurants.
Those pricier meals away from home helped propel food prices 2.3% higher than they were a year earlier—for the biggest increase in the reading since April 2016.
Year-over-year gas prices were up 7.8% last month after a 12.2% gain in December.
By region, Statistics Canada found that consumer prices rose at a slower annual pace last month in eight of the 10 provinces. Only British Columbia, with 2.1% inflation, and Ontario, with 1.8% inflation, saw bigger year-over-year price increases.
January inflation breakdown, by province
Newfoundland and Labrador: 1.1%, compared to 1.7% in December
Prince Edward Island: 1.6%, compared to 2%
Nova Scotia: 1.4%, compared to 1.7%
New Brunswick: 1.8%, compared to 2.9%
Quebec: 1.3%, compared to 1.8%
Ontario: 1.8%, compared to 1.5%
Manitoba: 2.1%, compared to 2.9%
Saskatchewan: 2.5%, compared to 3.4%
Alberta: 1.4%, compared to 2%
British Columbia: 2.1%, compared to 2%