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Inflation cools, but underlying rate continues to heat up

February 23, 2018 | By The Canadian Press

Ottawa – The annual pace of inflation cooled to 1.7 per cent last month – but rising prices underneath the turbulence of this headline number suggest the Bank of Canada is unlikely to veer from its interest-rate hiking path.

A new Statistics Canada report Friday showed that the average of three measures of core inflation, designed to filter out the noise of more-volatile items like gasoline, advanced once again in January to hit 1.8 per cent.

The average of the core readings reached its highest mark since September 2016, the latest consumer price index found.

Average core inflation has been on a steady monthly climb since it fell to 1.3 per cent in May 2017. The movement suggests underlying consumer prices have been moving higher due to Canada’s recent economic strength.


The upward momentum of underlying prices will catch the attention of the inflation-targeting Bank of Canada. Its ideal inflation bull’s-eye is two per cent.

The reading likely reinforces expectations the central bank will continue raising its trend-setting interest rate, which governor Stephen Poloz has already hiked three times since last summer.

The bank’s next rate announcement is scheduled for March 7. The Bank of Canada has repeatedly stressed it will remain data dependent when considering future rate decisions.

Overall, Statistics Canada’s headline inflation reading of 1.7 per cent for January was weaker compared to a 1.9 per cent result in December and 2.1 per cent in November.

The federal agency said the main downward forces on inflation last month were due to cheaper prices for video and digital equipment, electricity and travel tours.

The report said the primary upward pressure on inflation was driven by higher costs for air transportation, gasoline and restaurants.

Those pricier meals away from home helped propel food prices 2.3 per cent higher than they were a year earlier _ for the biggest increase in the reading since April 2016.

Year-over-year gas prices were up 7.8 per cent last month after a 12.2 per cent gain in December.

By region, Statistics Canada found that consumer prices rose at a slower annual pace last month in eight of the 10 provinces. Only British Columbia, with 2.1 per cent inflation, and Ontario, with 1.8 per cent inflation, saw bigger year-over-year price increases.



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