Inflation is moving right, but food prices and mortgage costs remain stubbornly elevated.
Canada's inflation eased to 5.9 per cent in January, arriving below what analysts had anticipated and offering the Bank of Canada a moment of cautious relief in its long campaign to restore price stability. Yet beneath the headline, the story is more complicated — food costs continue their stubborn climb, mortgage burdens have reached heights unseen since 1982, and the distance to the Bank's 2 per cent target remains vast. It is the kind of news that invites neither celebration nor despair, but rather the patient vigilance of those who know that turning points are only visible in hindsight.
- Inflation fell to 5.9% in January — a steeper drop than forecast — giving the Bank of Canada rare good news as it weighs whether to pause its most aggressive rate-hiking cycle in modern memory.
- Food prices refuse to cooperate, rising 10.4% annually with bakery goods up 15.5% and fresh vegetables jumping 14.7%, keeping real pressure on households already stretched thin.
- Mortgage interest costs surged 21.2% year-over-year — the sharpest increase since 1982 — a direct consequence of 425 basis points in rate hikes since March 2022.
- The Bank of Canada's core inflation measures edged down but remain well above target, and economists warn that one encouraging month is not the accumulation of evidence the Bank says it needs.
- Markets are already pricing in at least one more rate hike this summer, with any relief on borrowing costs pushed into 2024, leaving Canada in an uneasy and unresolved middle ground.
Canada's inflation rate fell to 5.9 per cent in January, Statistics Canada announced Tuesday — a steeper decline than the 6.1 per cent analysts had expected, and a step down from December's 6.3 per cent. Financial markets and policy circles received the news warmly. Douglas Porter of BMO Capital Markets called it a rare downside surprise, crediting not only temporary factors like a favourable base-year comparison — January 2022 had seen prices spike amid fears of Russia's invasion of Ukraine — but also a cooling economy and improving supply chains.
The relief, however, is partial. Food prices climbed 10.4 per cent year-over-year, actually accelerating slightly from December, with grocery costs up 11.4 per cent. Bakery products surged 15.5 per cent, fresh vegetables 14.7 per cent, and meat 7.3 per cent. Meanwhile, mortgage interest costs jumped 21.2 per cent annually — the largest increase since 1982 — a direct reflection of the Bank of Canada's rate-hiking campaign, which has raised the benchmark rate by 425 basis points to 4.5 per cent since March 2022.
The Bank is now weighing what Governor Tiff Macklem has called a conditional pause on further hikes, and Tuesday's data offers some comfort for that position — particularly as a counterweight to January's surprisingly strong labour market, which added 150,000 jobs. The Bank's core inflation measures, trim and median, both eased modestly to 5.1 and 5 per cent respectively.
Still, economists urge restraint. Marc Desormeaux of Desjardins described January's print as among the most optimistic since the inflationary episode began, but stressed that inflation remains a country mile from the 2 per cent target. The Bank has said it needs an accumulation of evidence before abandoning the possibility of further hikes. Investors are already pricing in at least one more increase this summer, with rate cuts pushed into 2024 — leaving Canada in an uncertain middle ground where the direction is encouraging, but the destination remains far off.
Canada's inflation rate dropped to 5.9 per cent in January, Statistics Canada announced on Tuesday, catching economists slightly off guard and offering the Bank of Canada some breathing room as it considers pausing its aggressive rate-hiking campaign. Analysts polled by Reuters had braced for a decline to 6.1 per cent, down from December's 6.3 per cent, so the steeper drop landed as welcome news in financial markets and policy circles alike.
The monthly picture was more modest. Prices climbed 0.5 per cent in raw terms, or 0.3 per cent when adjusted for seasonal patterns, with gasoline prices doing most of the pushing. Statistics Canada attributed the year-over-year slowdown partly to what economists call a base-year effect—January 2022 had seen prices spike amid fears of Russia's invasion of Ukraine, making the comparison easier this time around. Douglas Porter, chief economist at BMO Capital Markets, called it "a rare downside surprise in both headline and core inflation," noting that while some temporary factors helped, the cooling economy and improving supply chains were also at work.
Yet the headline number masks a stubborn problem underneath. Food prices, encompassing both grocery purchases and restaurant meals, climbed 10.4 per cent year-over-year, actually ticking up from December's 10.1 per cent. Grocery store prices alone rose 11.4 per cent. The breakdown is stark: meat prices up 7.3 per cent, bakery products surging 15.5 per cent, and fresh vegetables jumping 14.7 per cent. For Canadian households already stretched by housing costs, the grocery aisle remains a source of real pain.
Mortgage interest costs tell an even more dramatic story. They increased 21.2 per cent on an annual basis, the largest jump since 1982. This reflects the Bank of Canada's rate-hiking cycle, which since March 2022 has lifted the benchmark rate by 425 basis points to 4.5 per cent—one of the most aggressive tightening campaigns in the bank's history. The Bank's closely watched core inflation measures, the trim and median figures, both eased to 5.1 and 5 per cent respectively, down from the prior month.
The timing of this data matters because the Bank of Canada is now considering what Governor Tiff Macklem calls a "conditional pause" on further rate increases. The bank wants to assess whether its recent tightening is working before deciding on next steps. Porter suggests Tuesday's numbers will give the central bank comfort in that decision, particularly as a counterweight to recent strong economic signals—Canada's labour market added 150,000 jobs in January, well above what forecasters expected.
But economists are cautious about reading too much into one month. Marc Desormeaux, principal economist at Desjardins, called January's inflation print "one of the most optimistic since the start of our current inflationary predicament," yet stressed that inflation remains "a country mile away" from the Bank's 2 per cent target. He noted that the easing of core inflation measures is encouraging, but warned it is far too soon to declare victory. The Bank has signalled it needs an "accumulation of evidence" that inflation is genuinely cooperating before it abandons plans for potential further hikes.
Investors are already pricing in the possibility of at least one more rate increase this summer, with any cuts to borrowing costs pushed into 2024. For now, Canada sits in an uncertain middle ground: inflation is moving in the right direction, but food prices and mortgage costs remain elevated, and the central bank's next move depends on whether the trend holds.
Citas Notables
A rare downside surprise in both headline and core inflation, clearly a big step in the right direction.— Douglas Porter, BMO Capital Markets chief economist
Inflation is still a country mile away from the 2 per cent target, but January's CPI was one of the most optimistic since the start of our current inflationary predicament.— Marc Desormeaux, Desjardins principal economist
La Conversación del Hearth Otra perspectiva de la historia
Why did the January number surprise analysts when the trend had been downward for months?
Because inflation doesn't move in a straight line. December had come in at 6.3 per cent, and the consensus forecast was for 6.1 per cent. Getting to 5.9 per cent meant the decline accelerated more than expected—that's what made it a downside surprise.
But food prices actually went up month-to-month. How does that square with the overall number going down?
Food is real, but it's not the whole picture. Gasoline prices moved around, and there's the base-year effect—January 2022 had been spiked by Ukraine fears, so the comparison was easier this year. The food story is the one that matters for people's actual lives, though. Groceries up 11.4 per cent is not a small thing.
The mortgage interest costs jumped 21.2 per cent. That's the biggest since 1982. Why isn't that the headline?
Because it's a direct result of the Bank of Canada's own rate hikes, which they control. The headline inflation number is what the central bank is trying to fight. Mortgage costs are the collateral damage of that fight—painful, but expected when you raise rates this fast.
So the Bank of Canada gets to pause now?
Conditionally. They want to see if the trend holds. One good month doesn't mean inflation has broken. They need more evidence that it's genuinely cooperating before they stop hiking or start cutting.
What happens if food prices keep climbing?
Then the Bank faces a real dilemma. They can't control global food supply chains or weather. But if inflation stays sticky in food while they pause, they might have to hike again anyway. That's why economists are being careful about celebrating.
And the jobs number—150,000 added in January—that complicates things?
Exactly. A hot labour market usually pushes inflation up, not down. So the Bank sees conflicting signals: inflation easing, but the economy still strong. That's why they're calling it a conditional pause, not a victory lap.