On Tuesday, Statistics Canada released its CPI for January, which showed a dip to 2.9% from 3.4% reported in December. Canada Inflation data shows inflation is well below the estimated number by economists and has brought good news to the Canadian citizens and the Bank of Canada, which has been trying relentlessly to bring down the inflation to 2%.
Information from the CPI Data
In January, prices went up by 2.9%, a decrease from the 3.4% reported in December. The decline in inflation was mainly due to the drop in gasoline prices. Year-over-year, the gasoline price decreased by 4.0% in January compared to a 1.4% increase in December. The primary reason for this decrease is due to a base-year effect where the price of gasoline increased in January 2023 due to the refinery closing due to the Winter Storm Elliott.
In January 2024, gasoline prices decreased by 0.9%, the fifth month in a row when prices were reduced. One of the major reasons for the price drop is the decrease in gas prices in Manitoba by 14.1%. This price drop was followed by a temporary pause on the provincial gas tax.
The prices of groceries went up by 3.4% year over year and are lower compared to the increase of 4.7% seen in December. The slowdown in grocery price inflation results from a variety of food items. Meat prices rose by 2.8%, dairy products increased by 1.5%, bakery products went up by 4.0%, and fresh fruit prices increased by 1.9%.
However, some food became significantly cheaper year over year as soup prices dropped by 2.1%, bacon prices decreased by 8.4%, and shrimp and prawns costs dropped by 3.4%.
Economists React to Canada Inflation Data
Pedro Antunes, Chief Economist at Conference Board of Canada, came on a television interview on Tuesday where he optimistically said that the Canada inflation data brings good news as they were back in the range of one to three, which the central bank looks out for. He added that they had hit the target before when it had reached 2.8%.
Similarly, Randall Bartlett, Senior Director of Canadian Economics at Desjardins, said that the Canadian inflation data surprised everyone as all the numbers came below expected.
However, the question on most minds is how this news will impact interest rates. Antunes has said that the Bank of Canada may not change their stance immediately. He further added that there is a possibility that the Bank Of Canada will wait for rate cuts by the US Federal Reserve before they make any major moves.
Shannon Terell, a financial expert with NedWallet Canada, has said,
“January’s inflation data is an encouraging indicator for those awaiting relief from high-interest rates, as the country’s inflation data influences the Bank of Canada’s rate decisions.”
Barlett has said that the possible rate cuts might happen in the second quarter of 2024. Veronica Clark, an economist with Citi Financial, has said that the officials will be cautious in cutting rates as they will not want to re-stimulate the housing demand before or during the buying season.
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