Within range

Remember when Canada's CPI data for December were released in mid-January?  The headline rate ticked up to 3.4 percent year-on-year, prompting hand-wringing in the media (and even, it should be said, by some professional economists who should have known better) on the basis that the data would prompt the Bank of Canada to delay interest rate cuts. The number was almost universally blamed on "higher gasoline prices", even though gas prices actually fell in the month; the real cause was a calculation anomaly related to the so-called "base effect", but it seems almost nobody could actually be bothered to figure that out. 

So, with past as prologue, today saw the release by StatsCan of CPI data for January.  On the surface the numbers look like good news: year-on-year headline CPI fell more than expected, dropping to 2.9 percent, just barely within the Bank of Canada's 1 - 3 percent target range.  And below the surface?  Well, guess what, that's mostly good news too.

Gasoline prices were once again a big part of the story, standing 4.0 percent lower than a year ago.  However, CPI excluding gasoline also slowed noticeably in the month, falling to 3.2 percent year-on-year from December's 3.5 percent reading.  Other special aggregates also showed a promising trend. Prices for food purchased from stores slowed to 3.4 percent from December's 4.7 percent.  CPI excluding food fell 0.1 percent in the month, dropping the yearly rate to 2.7 percent. The fastest-rising sub-component of the index continues to be shelter, which rose 6.2 percent from a year ago, but the month-on-month increase was a rather more modest 0.3 percent.

All three of the Bank of Canada's preferred measures of core inflation eased in the month.  Their mean value now stands at just below 3.4 percent, 0.3 percent lower than in December and markedly below the peak of near 5 percent seen early in 2023. 

This all looks very positive for the Bank of Canada, though it hardly warrants the renewed speculation in the media about early rate cuts: June still looks like the best bet for that.  And there is, as always, a possible fly in the ointment.  Gasoline prices have moved sharply higher in February, mainly courtesy of the Houthis. That could well mean that headline CPI ticks back above 3 percent for the month, no doubt triggering a fresh round of media angst, which can of course be safely ignored.