January’s Canadian consumer price inflation (CPI) data release was a welcome surprise on a number of fronts. For the prognosticators among us, the current 2.9% annual rate of inflation beat consensus estimates, which were for inflation to come in just above 3%. (Among rennie intelligence’s inflation rate projection scenarios, 2.9% was in line with the bottom-end of our forecast range, but lower than our baseline 3.1% expectation.) As consumers, the data points to more modestly-increasing prices for a wide array of good and services, reducing pressure (at the margin) on our collective cost of living.
Notably, January’s reading put headline inflation within the Bank of Canada’s target range of 1-3% for the first time since July 2023, and only the second time since March 2021.
Of course, one data point does not a trend make, and the Bank will likely require at least one more inflation reading below 3% before it contemplates reducing its trend-setting interest rate (currently at 5.0%).
That said, the headline rate of inflation is working against broad-based headwinds, with six of the eight major categories within the CPI seeing a slowdown in year-over-year inflation between December 2023 and January 2024. Most notably, however, annual shelter inflation was 6.2% in January (the highest of the major categories, and up from 6.0% in December)—though largely on the back of, it should be said, an almost 30% increase in the mortgage interest cost component of the CPI. Excluding this component yields an annual inflation rate of only 2.0% for everything else—the eighth month of the last nine where the ex-mortgage-interest inflation rate was below 3%.
The takeaway here, then, is that Canadian inflation is unambiguously slowing, meaning we’re just a little bit closer to the beginning of what will amount to significant interest rate cuts by the Bank of Canada later this year.
