Flaring inflation unlikely to sway Bank of Canada

OTTAWA The pace of inflation in Canada accelerated faster than expected last month, but economists said that prices are not rising at a level that would force the Bank of Canada to change course.

Food, shelter and transportation costs all rose in January as the consumer price index registered a two per cent jump for the month, the strongest level since November 2014 and higher than the 1.8 per cent consensus forecast.

Canadians shopping for groceries received one of the biggest sticker shocks, as data shows that prices for fresh vegetables jumped 18.2 per cent in January year- over- year, following a 13.3 per cent increase in December. Even gasoline prices saw a 2.1 per cent rise, despite the low oil price environment.

The surprise uptick will certainly catch the attention of the central bank, but the recent rebound of the loonie to 73 cents U.S. should help temper prices for consumers, say economists.

“Given the strengthening in the currency since the Bank’s January decision, there is less likelihood that these pass- through effects intensify further,” said David Tulk, head of global macro strategy at TD Securities. “As a result, we see the Bank comfortable to remain on the sidelines in anticipation of the announcement of the fiscal stimulus.”

January’s upward move in prices was broad, with seven of the eight areas tracked by Statistics Canada seeing higher prices ( only clothing and footwear registered a small decrease). Core prices, which exclude food and energy because they tend to be more volatile, also rose two per cent for the month.

Stronger prices complicate the picture for the Bank of Canada, which has loosened monetary policy in the past year by cutting interest rates from one per cent as of last January to the current 0.50 per cent mark.

The moves have contributed to the weaker dollar, something the bank noted last month when governor Stephen Poloz opted to keep the bank’s overnight rate unchanged.

Retail sales data released by Statistics Canada Friday also showed that even as sales dropped in December, retailers raised their prices by an average of two per cent in the month.