The Consumer Price Index (CPI) went up 2.9% in January compared to a year ago. This was a sharp fall from 3.4% in December. Gasoline prices were the main reason for this slowdown - falling 4% year-over-year compared to the 1.4% increase in the previous month. Excluding gasoline, headline CPI fell from 3.5% in December to 3.2% year-over-year in January.
Grocery price inflation eased to 3.4% year-over-year in January compared with 4.7% in December. Other contributions to the downward pressure on headline inflation include lower prices for clothing, footwear, airfares, and travel tours.
Out of all the components used to calculate the CPI, shelter inflation contributes the most to annual inflation. Delayed effects from previous rate hikes made by the Bank have also added to the CPI. The yearly growth in mortgage interest costs dipped last January but still accounted for roughly 25% of total annual inflation. Excluding mortgage costs, inflation is currently at 2.0%.
Over the last two months, home sales have shown signs of recovery according to the Canadian Real Estate Association (CREA). The CREA’s senior economist, Shaun Cathart stated that current “trends suggest a market that is starting to turn a corner but is still working through the weakness of the last two years.” Based on expectations from the Bank of Canada and Canada’s Housing Minister, lowering interest rates will likely aid in balancing supply and demand within the housing market.
The Bank of Canada will meet on March 6th for the next interest rate announcement. Although last month's inflation report shows signs of easing, it remains above the 2% inflation target. The Bank will continue to stay vigilant as high wage gains persist and core inflation measures remain above 3%. Dr. Sherry Cooper still predicts that the Bank will start cutting rates by June 2024. Stay tuned for more updates!
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