By Promit Mukherjee
OTTAWA, Feb 17 (Reuters) – Canada’s annual inflation rate in January accelerated at a slower pace than the previous month as a big drop in gasoline prices helped cushion the impact of higher food and clothing prices, Statistics Canada said on Tuesday.
The consumer price index rose 2.3% in January compared with 2.4% in December, beating an analysts’ poll which pegged January’s expected rise in consumer prices at 2.4%.
On a monthly basis, the CPI was unchanged from the prior month, data showed.
The gasoline price index was the largest contributor to the deceleration in headline inflation, StatsCan said, as the yearly decline in gasoline prices was huge.
Prices at petrol pumps fell on average 16.7% in January, after a decline of 13.8% in December. But, excluding gasoline, the CPI rose 3% in January, matching the increase in December, the statistics agency said.
A sales tax break during the same period last year created an opposite base effect for some products such as food, alcohol and clothing. This pushed up the prices last month when compared with the same period a year ago.
Food prices rose 7.3%, largely based on food from restaurants, and the category containing primarily alcoholic beverages rose 4.8% in January.
Due to the choppy impacts of the sales tax break, economists usually focus on core inflation to ascertain the actual rise in consumer prices.
Excluding food and energy, the CPI rose 2.4% year over year in January, following a 2.5% increase in December, the agency said.
The Bank of Canada’s preferred core measures of inflation continued to ease.
CPI-median, or the price change of the centermost component of the CPI basket when arranged in order of increasing prices, was 2.5% compared with 2.6% previously, while CPI-trim, which excludes the most extreme price changes, was 2.4%, down from 2.7% in December, StatsCan said.
Shelter costs, which account for the biggest weight in the CPI basket, continued to rise at a slower pace and rose 1.7% last month from a year earlier.
The January data come as the Bank of Canada has indicated that it considers inflation to be stable and around the mid-point of its target range. This has helped the central bank to pause rate cuts at 2.25%.
“It’s clear now that Governing Council should be squarely focused on supporting the economy,” Royce Mendes, managing director and head of macro strategy at Desjardins Group wrote in a note after the inflation numbers were released.
Money markets are now pricing in a chance of a rate cut by July, although economists are still maintaining that there could be no cuts this year as inflation stays at the central bank’s target.
The Canadian dollar was trading down 0.2% to C$1.3668 to the U.S. dollar. Yields on the two-year government bonds were down 3.9 basis points to 2.439%.
(Reporting by Promit Mukherjee; Editing by Dale Smith, Ros Russell and Franklin Paul)
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