In a rare bit of positive economic news, Canada’s inflation rate ticked steadily downward in January and setting the stage for a possible Bank of Canada interest rate cut later in the spring.Statistics Canada’s headline number came in at 2.9%, down from 3.4% in December and exceeding most analysts expectations of 3.3%. Although it was fuelled mostly by 4% lower year-over-year gasoline prices, January marked the first month-to-month decline in the overall consumer price index on a seasonally adjusted basis, the first time it’s happened since the start of the pandemic four years ago..That said, so-called ‘core inflation’ which strips out gasoline and other volatile items, came in at 3.2% which is still well above the Bank of Canada’s 2% target.Grocery prices rose 3.4% compared to 4.7% in December due to lower prices for items such as bacon, shrimp and canned soup, for instance.Although food is coming down, shelter is going up. And in fact, mortgage and rent inflation were the main drivers overall, rising to 6.2% from 6% in December. Mortgage costs were up 27.4% year-over-year while rents climbed 7.9%. Electricity was up about 11%..“Clearly today's result makes rate cuts much more plausible in coming months,“BMO Economist Douglas Porter.Excluding those two items alone, overall inflation would have been about 1.5%, or well within the bank’s 2% target. That’s despite strong job growth, which is typically seen as a contributor to higher price increases..That doesn’t mean rates will come down sooner rather than later, however.Earlier this month, Bank of Canada Governor Tiff Macklem told a Parliamentary committee: “You don’t want to lower them until you’re convinced…that you’re really on a path to get there and that’s really where we are right now.”Bank of Montreal chief economist Douglas Porter said in a research note that January typically sets the tone for the rest of the year as companies make price adjustments for the next 12 months.And though he expects Macklem to take a cautious line on future rate cuts, Porter expects some relief in the second half of the year.“Clearly today's result makes rate cuts much more plausible in coming months and we remain comfortable with our call that the bank will begin trimming in June," he wrote.The bank’s next rate policy announcement comes on March 6. Tax consultants RSM Canada expects no change at that meeting but thinks rate relief could come as soon as April. “Monetary policy has basically done its job, said RSM economist Tu Nguyen..But the Conference Board of Canada said risks remain, including geopolitical tensions in the Middle East and shipping bottlenecks in the Red Sea.“This doesn’t mean that interest rate cuts are coming in March. While cooler headline CPI growth will encourage a looser monetary policy grip… international risks, such as conflict along shipping lanes in the Red Sea and bottlenecks at the Panama Canal, could also impede a return to target,” it said in a special report.
In a rare bit of positive economic news, Canada’s inflation rate ticked steadily downward in January and setting the stage for a possible Bank of Canada interest rate cut later in the spring.Statistics Canada’s headline number came in at 2.9%, down from 3.4% in December and exceeding most analysts expectations of 3.3%. Although it was fuelled mostly by 4% lower year-over-year gasoline prices, January marked the first month-to-month decline in the overall consumer price index on a seasonally adjusted basis, the first time it’s happened since the start of the pandemic four years ago..That said, so-called ‘core inflation’ which strips out gasoline and other volatile items, came in at 3.2% which is still well above the Bank of Canada’s 2% target.Grocery prices rose 3.4% compared to 4.7% in December due to lower prices for items such as bacon, shrimp and canned soup, for instance.Although food is coming down, shelter is going up. And in fact, mortgage and rent inflation were the main drivers overall, rising to 6.2% from 6% in December. Mortgage costs were up 27.4% year-over-year while rents climbed 7.9%. Electricity was up about 11%..“Clearly today's result makes rate cuts much more plausible in coming months,“BMO Economist Douglas Porter.Excluding those two items alone, overall inflation would have been about 1.5%, or well within the bank’s 2% target. That’s despite strong job growth, which is typically seen as a contributor to higher price increases..That doesn’t mean rates will come down sooner rather than later, however.Earlier this month, Bank of Canada Governor Tiff Macklem told a Parliamentary committee: “You don’t want to lower them until you’re convinced…that you’re really on a path to get there and that’s really where we are right now.”Bank of Montreal chief economist Douglas Porter said in a research note that January typically sets the tone for the rest of the year as companies make price adjustments for the next 12 months.And though he expects Macklem to take a cautious line on future rate cuts, Porter expects some relief in the second half of the year.“Clearly today's result makes rate cuts much more plausible in coming months and we remain comfortable with our call that the bank will begin trimming in June," he wrote.The bank’s next rate policy announcement comes on March 6. Tax consultants RSM Canada expects no change at that meeting but thinks rate relief could come as soon as April. “Monetary policy has basically done its job, said RSM economist Tu Nguyen..But the Conference Board of Canada said risks remain, including geopolitical tensions in the Middle East and shipping bottlenecks in the Red Sea.“This doesn’t mean that interest rate cuts are coming in March. While cooler headline CPI growth will encourage a looser monetary policy grip… international risks, such as conflict along shipping lanes in the Red Sea and bottlenecks at the Panama Canal, could also impede a return to target,” it said in a special report.
