Canada Inflation Research Brief

Underlying inflation details point to growing price pressures. Canada’s consumer price index edged up 10 basis points to 1.9 per cent year over year in January, marking the sixth consecutive month that inflation was at or below the Bank of Canada’s 2.0 per cent target. Subdued headline growth was largely a result of the GST tax holiday, which runs between mid-December and mid-February; yet when excluded, underlying inflation pressures are starting to mount. As past interest rate cuts are absorbed by the broader economy, household spending has begun to gain momentum. Consequently, the central bank’s preferred measures of core inflation, CPI-trim and CPI-median – which use tax-adjusted data – once again rose by an above-target rate of 0.23 per cent on average, with the three-month annualized rate hitting 3.0 per cent. This could suggest the Bank of Canada is nearing the end of their loosening cycle, though this depends on evolving trade relationships with the United States.