• The consumer price index rose 2.4% year-on-year in January, slightly ahead of market expectations for 2.3%.
  • Adjusting for seasonality, consumer prices rose 0.1% month-on-month, slowing from December’s 0.4% pace.
  • Energy prices (and gasoline in particular) were again the main driver of year-on-year inflation. Gasoline prices accelerated to 11.2% (year-on-year) from 7.2% in December. The introduction of carbon pricing in Alberta contributed to the gain. Excluding gasoline, inflation remained steady at 2.0%.
  • The Bank of Canada’s core inflation measures were mixed, but on average edged lower to 2.0% (from 2.1%) in January. CPI-common fell to 1.8% (from 2.0%), CPI-median was unchanged at 2.2% and CPI-trim edged up to 2.1% (from 2.0%).

Key Implications

  • The positive contribution to inflation from higher oil prices will certainly unwind in February, bringing the headline down with it. While oil and gasoline prices rose at the start of January, they plummeted through the month as news around the COVID-19 outbreak spread. The WTI benchmark price is down 12% on average so far in February from its average in January.
  • The downside risks to the Canadian economy have intensified with the COVID-19 outbreak and lengthening rail blockades. The Bank of Canada had been hoping for a convincing rebound in growth following the slowdown in the fourth quarter of last year. That now appears unlikely.
  • While temporary factors can (once again) be blamed for the ongoing slowdown, a long enough series of temporary setbacks is indistinguishable from something permanent. The consequence – a widening output gap, increased economic slack, and ultimately downward pressure on inflation – will not go unheeded by the central bank.

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