Statistics Canada's consumer price index for January 2025 is set to be released on Tuesday, with economists anticipating minimal changes in Canada's inflation numbers. The stabilization comes as the federal government's pause on sales tax for various goods, enacted before the Christmas holidays, continues to influence spending behaviors. This tax break contributed significantly to the recent decrease in the annual inflation rate, which ticked down to 1.8 percent in December from a previous estimate that would have seen inflation rise to 2.2 percent without the break.
The Bank of Canada's next rate decision is scheduled for March 12, following its recent interest rate cut to three percent on January 29. Economists like RBC's Nathan Janzen and BMO's Doug Porter expect the inflation rate to either tick down or remain steady. They attribute this stability largely to controlled growth in grocery prices and a deceleration in restaurant food purchases and alcohol sales. Despite these positive indicators, shelter cost inflation remains elevated, though it slowed slightly to 4.5 percent in December, with rent prices rising 7.1 percent from the same time last year.
Porter commented on the current economic climate, stating:
“We’re in a much better place than we were a year ago, let alone two or three years ago, when inflation was running hot.” – Doug Porter
Gasoline prices rose by 3.5 percent in December, adding pressure to the overall inflation numbers. Nevertheless, grocery price growth decelerated to a year-over-year increase of 1.9 percent. The GST break has introduced complexity into the analysis of underlying price trends, a factor that economists expect will persist until March.
Janzen explained:
“The tax holiday will continue to muddy inflation readings until March when we can get a cleaner read of the consumer price index that are clear of distortions.” – Nathan Janzen
The Bank of Canada remains focused on its preferred 'core' consumer price index measures, which exclude the impact of indirect taxes, to gauge underlying inflation trends. Janzen highlighted the importance of these measures:
“Still, the Bank of Canada will be focused on their preferred ‘core’ (consumer price index) measures, which exclude the impact of indirect taxes, for clues on how underlying inflation trends are shaping up.” – Nathan Janzen
Porter added perspective on interest rates:
“The widespread assumption is that the bank will continue to shave rates a little bit further, which would put them pretty much in the middle of what I would consider the bank would feel would be neutral.” – Doug Porter
