Canada’s inflation rate slowed to 2.9% in January as gas prices fell

Canada’s annual inflation rate slowed to 2.9 per cent in January, mostly due to a deceleration in the price of gas, according to data from Statistics Canada.

Economists were expecting the rate to come in at 3.3 per cent.

Gas prices fell four per cent year over year in January after driving headline inflation up in December, due to what economists call a base-year effect (the impact of comparing prices in a given month to the same month a year earlier).

The core inflation rate, which strips away gasoline and other volatile sectors, was 3.2 per cent.

However, mortgage interest costs continued to be the No. 1 driver of inflation, at a year-over-year rate of 27.4 per cent, while rent price growth ticked up to 7.9 per cent.

“It’s a much milder reading than expected, especially given the high-side surprise seen in last week’s round of U.S. inflation reports,” wrote Douglas Porter, chief economist at Bank of Montreal, in a note.

“Importantly, January can set the tone for inflation, since firms often take the opportunity to adjust prices for the year in this month — and there was little sign of a big January bump this year,” he added.

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The Bank of Canada will likely remain cautious as wage growth and the cost of services remained firm, and because core inflation is still above three per cent, Porter said.

“But clearly today’s result makes rate cuts much more plausible in coming months, and we remain comfortable with our call that the Bank [of Canada] will begin trimming [interest rates] in June,” he wrote.

Grocery price growth slows

While groceries are still getting more expensive, prices grew at a slower rate in January, StatsCan said.

Meat, dairy products, fresh fruit and baked goods were among the basket items that helped bring the food inflation rate down to 3.4 per cent.

Soup, bacon, shrimps and prawns saw year-over-year price declines in January.

While consumers paid much less for airfare — typical of January, as the holiday rush subsides — they paid more for cell services month over month, as price promotions from the fall months ended.