Canada experienced a modest decline in its inflation rate during January, with the annual pace dropping to 2.3% from the previous month’s 2.4%, according to new data released Tuesday by Statistics Canada.
The improvement came primarily from substantial decreases in fuel costs, which helped offset rising expenses for food and clothing items. The January figure performed better than economist predictions, which had anticipated inflation would remain steady at 2.4%.
Month-to-month, Canada’s Consumer Price Index remained flat with no change from December, the data revealed.
Gasoline prices served as the primary driver behind the slower inflation growth, with fuel costs plummeting 16.7% compared to the same period last year. This represented a steeper decline than December’s 13.8% drop in gas prices.
However, when fuel is removed from calculations, consumer prices actually climbed 3% in January, matching December’s increase, the statistical agency reported.
Food costs presented a different story, surging 7.3% annually, with restaurant meals contributing significantly to this rise. Alcoholic beverage prices also increased by 4.8% during the month.
These food and alcohol price jumps partly resulted from comparison effects related to sales tax breaks that were implemented during the same timeframe in the previous year, creating an unfavorable baseline for current measurements.
Core inflation metrics, which economists consider more reliable indicators because they exclude volatile food and energy sectors, showed prices rising 2.4% year-over-year in January, an improvement from December’s 2.5% increase.
The Bank of Canada’s preferred inflation measurements also demonstrated continued moderation. The CPI-median measure, which tracks the middle-range price changes, decreased to 2.5% from the prior month’s 2.6%. Meanwhile, CPI-trim, which filters out the most extreme price movements, fell to 2.4% from December’s 2.7%.
Housing expenses, representing the largest component in Canada’s price index, continued their pattern of slower growth, rising just 1.7% compared to January of the previous year.
The inflation data arrives as Canada’s central bank has signaled satisfaction with current price stability, viewing inflation as hovering near the middle of its target range. This assessment has supported the bank’s decision to maintain its key interest rate at 2.25%.
Following the report’s release, the Canadian dollar weakened slightly by 0.2% against the U.S. dollar, trading at C$1.3668. Two-year government bond yields also declined by 3.9 basis points to 2.439%.
