Blue sky shines through on latest inflation numbers

The seemingly endless not-great news about inflation and interest rates took a pleasant turn this week. On Tuesday, Statistics Canada revealed that the Consumer Price Index rose 2.9% in January.

That’s lower than economists expected, and within the target range that the Bank of Canada uses to indicate a balanced economy. As a comparison, inflation was 3.4% in December.

“Inflation is now in the target range, which is good news for the Bank of Canada. But the Bank is also acutely aware of the stickiness of core measures and the impact of elevated shelter prices,” Canadian Chamber Senior Economist Andrew DiCapua said.

However, despite the surprise drop in inflation, the Bank is still expected to hold its interest rate at 5% until late spring.

“The unexpectedly large declines in airline fares and clothing prices may be a sign of
weakness in consumer spending, but could also partly reflect some data volatility,” stated an Economics Report from CIBC. “However, even allowing for a partial
rebound, inflation in Q1 is still tracking below the Bank of Canada’s MPR forecast (2.9% vs 3.2%). So even with GDP growth running somewhat stronger than they expected, we still anticipate that interest rate cuts will start in June.”