Statistics Canada said on Tuesday that Canada’s consumer price index (CPI) increased 2.3% in January compared with the same month a year earlier, a slight deceleration from the 2.4% rise recorded in December. The January outcome also came in marginally below the consensus forecast of a 2.4% year-on-year gain.
On a month-over-month basis the CPI was unchanged in January from December, according to the agency’s release.
The statistics office identified the gasoline price index as the largest single contributor to the slowdown in headline inflation. Pump prices fell an average 16.7% in January after dropping 13.8% in December, producing a pronounced year-over-year decline that weighed on overall inflation.
Removing gasoline from the index produced a different picture: the CPI excluding gasoline rose 3.0% year over year in January, matching the rate recorded in December. That divergence reflects how volatile energy prices can mask broader price trends in other parts of the basket.
Statistics Canada highlighted a sales tax break a year earlier that created an opposite base effect for several categories, including food, alcohol and clothing. That base effect pushed those year-on-year measures higher in January when compared with the same period a year earlier.
Food prices climbed 7.3% in January, with much of that increase attributable to prices for meals purchased at restaurants. The category that primarily captures alcoholic beverages posted a 4.8% increase over the year.
Given these choppy base effects tied to the earlier tax relief, economists and policymakers typically focus on core inflation measures to assess underlying price pressures. Excluding food and energy, the CPI rose 2.4% year over year in January, following a 2.5% increase in December.
The Bank of Canada’s preferred core metrics continued to show easing. The CPI-median, which measures the centermost price change of components in the CPI basket, declined to 2.5% in January from 2.6% in the prior month. CPI-trim, which strips out the most extreme price movements, fell to 2.4% from 2.7% in December.
Shelter costs, the single largest weight in the CPI basket, maintained a slower pace of increase, rising 1.7% in January from a year earlier.
The January inflation snapshot arrives against the backdrop of the Bank of Canada signaling that inflation is stable and near the midpoint of its target range. That assessment has underpinned the central bank’s decision to pause rate cuts at 2.25%.
Context and implications
The divergence between headline inflation - pulled lower by the large year-on-year drop in gasoline prices - and several categories that are still showing robust gains highlights continuing heterogeneity in price dynamics across the economy. Core measures held near recent levels, while food and restaurant prices remain elevated, and shelter continued to rise at a more moderate pace.
Policymakers are likely to weigh these mixed signals as they assess the path for interest rates under current economic conditions.