Canada's annual inflation rate fell more than expected to 2.9% in January, mainly due to lower gas prices, while a measure of core inflation fell to its lowest level in more than 2 years, based on data released on Tuesday.
Analysts have even predicted the inflation rate will decrease to 3.3% from 3.4% in December.
On a monthly basis, the consumer price index was unchanged, compared to a forecast increase of 0.4%.
Two of the Bank of Canada's (BoC) three core measures of core inflation also edged lower. CPI-median slowed to 3.3%, the lowest since November 2021, while CPI-trim eased to 3.4%, the lowest since July 2021.
Although the central bank has stated that this data alone is not enough to influence policy decisions, a drop in prices could speed up talks on rate cuts.
The BoC has forecast headline inflation to remain around 3% in the first half of 2024, before slowing to 2.5% by the end of the year.
The BoC kept overnight rates at 5% in January and said that while underlying inflation remained a concern, the bank's focus shifted to when to reduce borrowing costs.
Ahead of its final announcement in January, members of the bank's policy governing council expressed concern about reducing borrowing costs too soon, especially as house prices continue to keep overall inflation at high levels.
Home price inflation, which includes the cost of mortgage interest, rent, and related components of home prices, rose to 6.2% in January from 6% in December. The biggest contributor to the decline in headline inflation in January was a drop in gas prices, which fell 4% on an annual basis, Statistics Canada reported. On a monthly basis, gas prices fell 0.9%, marking the fifth consecutive monthly decline.
The price of food bought in shops rose by 3.4% – the lowest growth rate since August 2021 also putting downward pressure on core inflation. Excluding fluctuating food and energy prices, prices rose by 3.1% compared to a 3.4% increase in December.
The next rate announcement by the bank is on March 6, where the bank is expected to keep its key interest rate at a 22-year high of 5%.
