Canada’s inflation rate tumbled to 2.9% in January, grocery prices rise more slowly

Canada’s annual inflation rate fell to 2.9 per cent last month, marking a sharper deceleration in price growth than expected by forecasters.

Statistics Canada’s consumer price index report released Tuesday says the largest contributor to the decline was lower gasoline prices on a year-over-year basis.

The annual inflation rate was 3.4 per cent in December.

Tuesday’s report offers several layers of good news for consumers as price growth decelerated in five out of eight components of the consumer price index, including food.

Grocery prices were up 3.4 per cent annually in January compared with 4.7 per cent in December.

There are also positive signs for the Bank of Canada as the latest figures show underlying price pressures easing and the headline rate falling back to the central bank’s one to three per cent target range.

The central bank’s core measures of inflation, which strip out volatility in prices, also fell in January.

On a seasonally adjusted monthly basis, prices in January fell for the first time since May 2020.

The half a percentage point decline in the headline inflation rate comes after a period of volatility in price growth, which added uncertainty to the timing of rate cuts.

Canada’s inflation rate briefly dipped below three per cent in June – falling to 2.8 per cent – but ticked back up in the second half of 2023 as underlying price pressures proved to be stubborn.

Since then, economic data has weakened, suggesting monetary policy is finally having a more meaningful impact on the economy.

Prices for clothing and footwear, for example, declined 3.2 per cent from December.

On a seasonally adjusted monthly basis, prices in January fell for the first time since May 2020.

The half a percentage point decline in the headline inflation rate comes after a period of volatility in price growth, which added uncertainty to the timing of rate cuts.

Economists reacting to Tuesday’s report say deeper discounting in discretionary items suggest consumer demand is weakening.

The central bank, which has been holding its key interest rate at five per cent, has recently signalled its next move is likely a rate cut.

But before it can pull that trigger, the Bank of Canada has been clear it needs more evidence that inflation is headed back to its two per cent target.