Statistics Canada’s latest data on Feb. 21 show that Canada’s inflation rate slowed to 5.9 percent in January, which was lower than the 6.2 percent expected by economists. Inflation slowed in January, clearing the way for the central bank to conditionally pause interest rate hikes next month, experts at commercial banks said.
Mortgage rates continued to rise, rising 21.2 percent in January, the biggest increase since September 1982, as the Bank of Canada tries to curb inflation with high-interest rates, Statistics Canada data show. Year-on-year growth in housing prices slowed in January as the housing market continued to cool, the ONS said.
Meanwhile, grocery prices rose even higher in January, up 11.4 % from a year earlier, the biggest gain in 40 years. Statistics Canada’s data show that the following food categories saw the highest price increases: meat rose 7.3 percent, bakery products rose 15.5 percent, dairy products rose 12.4 percent and fresh vegetables rose 14.7 percent.
The fresh and frozen chicken was particularly expensive, up 9% from last December. Fast food and takeaway prices are rising, and the cost of eating out is rising even faster.
Also, gasoline prices rose 4.7 percent month-on-month and 2.9 percent year-on-year in January, a slight slowdown from the 3.0 percent rise in December.
Inflation fell in January, tied to lower consumer cell phone bills. The reason is that the Boxing Day promotion at the end of December last year was extended into January, and consumers paid less for mobile phone service in January compared with the same period a year ago.
Prices for passenger vehicles fell year-over-year, partly reflecting the base year impact, as the availability of vehicles a year ago was impacted by supply chain issues.
Central bank may continue to suspend interest rate hikes
Bank of Montreal (BMO) chief economist Doug Porter said January’s inflation data, which showed a “rare downside surprise” in inflation, was a step in the right direction.
The central bank announced on Jan. 25 that it would suspend interest rate hikes. In less than a month, the inflation rate dropped. At that time, the central bank raised the benchmark interest rate to 4.5 percent, the eighth increase in less than a year. Since last March, the central bank has raised interest rates by a total of 425 basis points.
CIBC Bank senior economist Andrew Grantham also said in a note that the weaker inflation data “suggest that the Bank of Canada has already done enough to bring inflation under control,” Reuters reported.
He also said that January’s CPI data, as well as strong retail sales data over the past few months, suggest the central bank may not have to create a recession to bring inflation back to its 2 percent target. “That supports our call for no further interest rate hikes, but also no cuts until early 2024,” Grantham said.
After the release of the inflation data, the market lowered expectations for another rate hike. Money markets are now pricing in about an 80 percent chance that the Bank of Canada will raise rates again this year. One factor complicating the central bank’s decision to raise rates was strong jobs data for January, said James Orlando, senior economist at TD Bank. The report showed that the economy added 150,000 net jobs to an already tight labor market.
By April Chu, Vision Times Canada staff