The annual pace of inflation jumped last month to 2.4%, its fastest rate in almost two years, fuelled by higher costs at the gas pump, pricey tomatoes and a rare surge in clothing costs.
The move compared with a year-over-year increase of 2.2% in December, and topped the 2.3% economists predicted for January in a poll by financial markets data firm Refinitiv.
Much of the bump came as concerns about events in the Middle East helped push gas prices up 11.2% compared with January 2019 when a global supply glut lowered oil prices.
Statistics Canada said excluding gasoline the year-over-year inflation rate would have been 2% cent in January.
But by the end of January, prices dropped over concerns of the novel coronavirus outbreak and economists said the effect of gas prices should dissipate.
Experts also said the data released Wednesday by the national statistics office only slightly dents the odds of the Bank of Canada cutting its key interest rate this year.
The central bank has left the door open to a rate cut to stimulate growth–and consumer spending–if it sees an economic slowdown that is more persistent than expected.
“I think they’re a bit concerned that with slower growth more recently, inflation won’t stay on target,” said Josh Nye, a senior economist with RBC Economics.
“Despite a bit of upside surprise in terms of the headline rate in January and core inflation still at 2%, I think the door is still open to the Bank of Canada lowering interest rates this year.”
The average of Canada’s three measures for core inflation, which are considered better gauges of underlying price pressures and closely tracked by the Bank of Canada, was 2.033% compared with 2.067% for December.
“Despite the acceleration in headline inflation, underlying price pressures appear to be losing some momentum,” Royce Mendes, a senior economist at CIBC, wrote in a note.
The overall increase in prices of 2.4% compared with a year ago was also driven by increased mortgage interest costs, purchases of passenger vehicles, auto insurance premiums, and a bump in rents, Statistics Canada said.
Increases were partly offset by lower prices for telephone services, internet access, tuition fees and traveller accommodation, the agency said.
Costs grew for fresh vegetables by 5%, largely attributable the agency says to a 10.8% bump in the price of tomatoes stemming from inclement weather in growing regions of the United States and Mexico.
And clothing and footwear–normally not an inflationary driver–shot up 3.9% from a year earlier, which economists noted was its fastest annual growth recorded since 1991.
Regionally, prices on a year-over-year basis rose more in January than December in every province except Ontario and Quebec.