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Consumer prices were higher from the previous month with a 0.4%
month-on-month (m/m) rise on a seasonally adjusted basis (SA) and a
stronger 0.6% m/m jump on a non-seasonally adjusted basis
(NSA).
Annual inflation quickened to 1.1% year on year (y/y) SA and
1.0% y/y NSA.
Two of the three Bank of Canada core consumer price inflation
rates were higher, averaging 1.5% y/y.
Food price inflation came in stronger than expectations and
higher gasoline prices contributed to higher inflation
pressures.
The January blahs were made all the worse for consumers by
stronger inflation pressures, albeit at a relatively modest rate.
Looks for this trend to persist in the near term.
Although food price inflation has decelerated for the past three
months, the slowdown was weaker than expected. This was in part due
to a boost in food prices purchased at restaurants, hitting a
22-month high of 2.8% y/y. The price increase in the food purchased
from stores was significantly slower at 0.1% y/y.
Inflation was driven higher by the 1.9% y/y lift in services.
The 31.1% y/y leap in travel tours contributed to the overall
annual price increase despite recommendations against non-essential
travel. This boosted the recreation, education, and reading price
index. Elsewhere, the upward swings in home prices are putting more
upward strain on homeowners' replacement costs, advancing 5.8% y/y.
Plus, purchases of passenger vehicle prices climbed 2.9% y/y with
the release of new motor vehicle models. The low 3.3% y/y decline
in gasoline prices and higher costs for vehicle parts and repairs
lifted the cost of operating passenger vehicles for the first time
since February 2020. While demand remains soft, consumers are
getting a break on spending with a 4.1% y/y decline for clothing
and footwear.
With the economy reopening, there is a greater chance that
businesses will pass on higher prices to consumers, as many
business operators face challenges with slow business activity and
higher input costs, thanks to rising producer price inflation.
However, as of now, total and core inflation remain low, which
means the Bank will focus mostly on the economic recovery and on
lagging industries and sectors. The anticipated quick rise in
annual gasoline price inflation will pull total prices higher, but
as usual, the Bank will view this as a temporary price pressure.
There is still plenty of economic slack that needs to be absorbed.
The stronger-than-expected takeoff in January inflation will lift
the 2021 inflation outlook, closer to the 1.5% y/y range. The Bank
of Canada is expected to remain on the sidelines for a while longer
until the first rate hike in mid-2023.
Posted 24 February 2021 by Arlene Kish, M.A., Director – Economics, IHS Markit
