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

By Staff, with files from The Canadian Press | February 27, 2019 | Last updated on February 27, 2019
2 min read
Background of Canadian money: 5,10,20,50,100 dollar bills and coins, loonie, toonie, quarter, dime, nickel, penny
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The country’s annual inflation rate decelerated in January to 1.4% in large part because of lower prices at the pump, Statistics Canada said Wednesday said in a new report.

Year-over-year growth in consumer prices slowed following the 2% reading for December, the agency said in its latest consumer price index report.

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

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

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

The weaker prices in categories like energy offset stronger growth in other areas. Year-over-year prices last month were 13.2% higher for fresh vegetables, 7.8% higher for mortgage interest costs and 5.3% 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% in January for a third straight month.

The Bank of Canada has been expecting inflation to edge down below its ideal 2% target and to stay there throughout 2019, mostly because of lower gas prices.

The central bank, which aims to keep inflation between 1% and 3%, 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 and it’s widely expected to leave the interest rate unchanged at 1.75%.

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% is “highly uncertain.”

The bank, he said, is watching how several important uncertainties unfold.

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.

In a report, CIBC senior economist Royce Mendes said that the central bank appears “well-positioned to stay on the sidelines for at least the first half of the year.” He added that, as a result of today’s inflation data, the loonie rallied slightly and yields moved higher—likely because forecasters accounted for downside risks that didn’t materialize.

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Staff, with files from The Canadian Press

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