In January, Canada’s headline inflation rose 1.9% year-on-year, slightly higher than December’s 1.8% and consistent with expectations.
The increase in title CPI is largely driven by higher energy prices, especially gasoline (+8.6%) and natural gas (+4.8%).
The GST holiday running from mid-December to mid-February provides some relief. This temporary measure helps reduce the price of food purchased by restaurants (-5.1% y/y), alcoholic beverages (-3.6% y/y), and toys, games and hobbies (-6.8%/y).
The core inflation measures closely monitored by Canadian banks show a more mixed situation. The CPI stable at 2.2% y/y, excluding food and energy, but after seasonal adjustments from 4% in December, the CPI CPI rate that excludes food and energy slows down to 1.6 after seasonal adjustments from December. %.
However, the preferred core inflation measures of Canadian banks, CPI-TRIM and CPI-MEDIAN, are both higher than 2.7% y/y, indicating that potential inflationary pressures remain. Additionally, TD economist James Orlando noted that the three-month annualized trend of core inflation has been tracking more than 3%, suggesting that core inflation “should continue to be higher.”
Impact on Canadian banks reduces expectations
Following today’s release, Bank of Canada’s March 12 policy meeting lowered the market odds at 25 benchmarks to below 30%.
“Inflation pressures in Canada are too high to guarantee a loose monetary policy on inflation,” Scotiabank’s Derek Holt wrote.
“The job market situation is not worth further relaxation either,” he added. “Canadian inflation is still too warm to continue to relax.”
However, economists remain divided on the next move by the Canadian Bank. Like Oxford Economics, some still hope that the bank will continue to lower interest rates in the coming months.
“Bank of Canada will be binding as it weighs competitive concerns about higher tariff prices amid the drag on economic growth,” said Tony Stillo, director of economic director of Oxford Canada.
He added: “We believe that the BOC will be focused on the negative impact on the Canadian economy through temporary price shocks and raise uncertainty in trade policy, which puts it on track by June 2025, policy tax rates Another 75bps reduction to 2.25%. ”.
TD’s Orlando also highlights the challenges Canadian banks face in balancing competitive priorities.
“Does it weigh down the downside risks of the economy in the face of U.S. tariffs, or does it focus on recent economic strength and its impact on inflation?” he questioned, while acknowledging that there may be between now and the next BOC policy meeting A lot of changes have occurred.
“There is a lot of time from now until March 12, and if there is anything that needs to be paid for in the first few weeks of the president, then a lot of changes may be happening before that,” he added.
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Last modified: February 19, 2025
