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MNI:Canada CPI Slows More Than Expected to 5.9% On Base Effect


Canada's inflation rate slowed to 5.9% in January from 6.3% in December, a bigger moderation than economists predicted led by the "base effect" comparison to last year's price jump around the Ukraine war.

The consumer price index advance was the slowest in a year and down from a four-decade high of 8.1% set last June, according to Statistics Canada figures released Tuesday. Economists predicted a 6.1% pace. Prices climbed 0.5% in January from December, also less than the 0.7% that was expected. 

Core inflation rates also slowed in January, with the "median" index and the "trim" index both down 0.2pp to 5% and 5.1%. 

Slowing inflation meshes with the Bank of Canada's view policy makers are likely done raising interest rates as the 425bps of hikes over the last year work through an overheated economy. This is the last inflation report before the next rate meeting March 8, where investors saw the key rate staying at 4.5%. Governor Tiff Macklem has signaled he would only hike again if there is an accumulation of evidence inflation will stick above his 2% target, and it's far too soon to talk about a rate cut.

The base effect was prominent in slowing inflation, with prices up 0.9% in January of 2022 compared with 0.5% in the same month this year. 

Besides the base effect, inflation was slowed by a 6% fall in telephone services and a 7.9% decline in child-care and housekeeping costs. There were still some prominent gains including the biggest jump in mortgage interest costs since 1982 at 21%. Food price inflation quickened to 10.4% in January from 10.1% in December. 

Bank of Canada Deputy Governor Paul Beaudry on Thursday said it will take time to pull inflation all the way back to the 2% target after the strongest interest-rate hikes in decades and warned about complacency around finishing the job. Some investors had bet on a rate cut late this year until the last jobs report was far stronger than expected, leading to some talk instead of another hike. 

Another crucial report on fourth-quarter GDP comes Feb. 28, with a flash estimate from StatsCan suggesting annualized growth of 1.6%, throwing into question predictions of a recession this year.

The Bank predicts inflation will slow to 3% by mid-year and return to 2% in 2024. The Bank sets interest rates to keep inflation in the middle of a 1%-3% band and return to target within two years, and price gains have already topped 2% since March of 2021.

MNI Ottawa Bureau | +1 613-314-9647 |
MNI Ottawa Bureau | +1 613-314-9647 |

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