Canada’s annual inflation rate hit 1.0% in January, the lowest level in more than a year.
The slowdown in the consumer price index (CPI) was driven by tumbling gas prices. Year-over-year, gas prices fell 26.9% and January’s gas price index hit its lowest level since April 2009.
Across British Columbia, prices grew slightly less than they did Canada-wide, with 0.8% CPI growth after increasing 0.9% in December. Prices were up in all non-Maritime provinces for the month, with Ontario seeing the country’s biggest growth at 1.6%.
Excluding gas prices, however, the country’s annual inflation rate was 2.4% after rising 2.3% in December. This growth is due in large part to the lower Canadian dollar, which is driving up the cost of imports.
“The lower loonie’s wingprints were all over this report,” said BMO World Markets’ Douglas Porter.
Porter points to a 2.1% increase in clothing and footwear prices – a category that has seen almost consistent declines in the past decade. Food prices were up 5.4% year-over-year due to the rising cost of fruits and vegetables, which are almost all imported this time of year.
Dawn Desjardins, assistant chief economist at RBC Economics, said the drop in the inflation rate was no surprise and falling gas prices will further this trend. She said this will likely mean the Bank of Canada will maintain its overnight rate at 0.75% at next week’s rate announcement.
“Earlier this week, Governor Poloz commented that January’s rate cut was providing the Bank with time to evaluate how the economy is coping, given the oil price shock, and to size the negative hit to growth,” Desjardins said.
“His statements suggested that the Bank is in no hurry to make further adjustments via lowering the policy rate at its meeting next week but rather would use the time leading up to the April Monetary Policy Report and rate decision to assess the economy’s performance.”
The Canadian dollar fell on the announcement of the latest CPI data 80.67 cents US to 79.94 cents. As of press time, the dollar had rebounded slightly to 80.06 cents US.
