1) (Updated) Inflation ticks back up to 1.9% in January after rise in gas prices

Courtesy Barrie360.com and Canadian Press

By Nick Murray, Feb. 18, 2025

Canada’s annual inflation rate ticked back up in January to 1.9 per cent, Statistics Canada reported on Tuesday. 

Prices got a full month-long effect of the federal government’s tax break but a spike in gas prices to start the year offset the government’s relief, with underlying inflation accelerating.

The agency reported prices at the pump jumped 8.6 per cent year-over-year, in large part because of a 25.9 per cent spike in Manitoba, with the province reintroducing its provincial gas tax after a temporary suspension through 2024.

Meanwhile, natural gas prices rose 4.8 per cent annually in January, with an increase in demand pushing prices higher in Ontario and Quebec from an oversupply a year ago, Statistics Canada said.

“The GST holiday meant that headline inflation remained below the two per cent target in January, but there is clear evidence that underlying inflation pressures are building,” said Stephen Brown, deputy chief North America economist at Capital Economics, in a note to clients. 

“That suggests the Bank of Canada is getting close to the end of its loosening cycle, although the outlook for monetary policy ultimately hinges on whether President (Donald) Trump soon imposes stiff tariffs on imports from Canada.”

The Bank of Canada has brought its benchmark rate down to three per cent, with its latest cut being in January. 

Restaurant food prices declined a record 5.1 per cent from a year ago, thanks to the tax break, while alcohol prices dropped 3.6 per cent from the same time last year. The temporary break, however, ended over the weekend.

Without the tax break, Statistics Canada said the annual inflation rate would have accelerated to 2.7 per cent, up from 2.3 per cent in December.

The annual inflation rate continues to face upward pressure from mortgage interest costs, increasing at a rate of 10.2 per cent from a year ago, though this is the 17th consecutive month of deceleration after a peak of 30.9 per cent in August 2023.

With an increasing share of inflation components rising faster than three per cent in January, Royce Mendes, managing director and head of macro strategy at Desjardins, said he’s sticking with his belief that the central bank will hold rates steady when it meets again in March, “but that call is still contingent on tariff news and upcoming data releases co-operating.”

2) Little change expected in January inflation as GST break tamps down spending totals

Courtesy Barrie360.com and Canadian Press

By Nick Murray, February 17, 2025

Economists expect little movement in Canada’s inflation numbers, if any, when January data is released this week, though the underlying change in prices will be clouded by a full month of the government’s GST break.

Statistics Canada’s consumer price index for the first month of 2025 is set to be released on Tuesday.

Canada’s annual inflation rate ticked down to 1.8 per cent in December, in large part because of the federal government’s pause on sales tax for an array of goods heading into the Christmas holidays. Restaurant food purchases and alcohol bought from stores contributed the most to the deceleration — both received the GST reprieve when it began on Dec. 14.

Without the tax break, however, Statistics Canada estimated inflation would have instead risen to 2.2 per cent from 1.9 per cent.

“The broader story is inflation is — even when you take out that special (tax break) factor — is close to two per cent. Maybe a little bit above,” said BMO chief economist Doug Porter, who is expecting the inflation rate to hold steady.

“We’re in a much better place than we were a year ago, let alone two or three years ago, when inflation was running hot.”

RBC assistant chief economist Nathan Janzen expects inflation to tick down again to 1.7 per cent, also because of the temporary tax break.

“The tax holiday will continue to muddy inflation readings until March when we can get a cleaner read of the consumer price index that are clear of distortions,” Janzen wrote in a note to clients.

“Still, the Bank of Canada will be focused on their preferred ‘core’ (consumer price index) measures, which exclude the impact of indirect taxes, for clues on how underlying inflation trends are shaping up.”

Growth in grocery prices in December decelerated from a month prior, falling to 1.9 per cent year-over-year, while gas prices rose to 3.5 per cent.

Shelter cost inflation remains elevated, though it slowed slightly in December to 4.5 per cent, while rent prices rose 7.1 per cent from the same month a year earlier.

In its deliberations ahead of cutting its interest rate to three per cent on Jan. 29, the Bank of Canada’s governing council members indicated they were encouraged by recent indicators that showed the economy was picking up steam, and inflation holding steady around its two per cent target.

Porter said the heaviest measure by which the central bank will weigh against another rate cut is how the potential trade war with the United States plays out. The next rate decision is scheduled for March 12.

“The widespread assumption is that the bank will continue to shave rates a little bit further, which would put them pretty much in the middle of what I would consider the bank would feel would be neutral,” Porter said.

“I see 2.5 per cent as being pretty close to to neutral for the Bank of Canada, and I would assert we’re not quite there yet at three per cent.”.