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Economic News

Canada: When Forecasters Go High, Inflation Goes Low in January

February 20, 2024
Randall Bartlett
Senior Director of Canadian Economics


  • Headline CPI rose 2.9% y/y in January over the same month last year, coming in well below the consensus forecast of economists (3.3%). Meanwhile, monthly price growth fell 0.1% m/m on a seasonally-adjusted basis, the first decline since May 2020. Table 1 summarizes the key data points. 


January CPI in Canada surprised everyone, coming in well to the downside of any forecast. At 2.9% y/y, it is only the second time since April 2021 that total CPI inflation advanced by less than 3%, putting it squarely in the Bank’s 1% to 3% operating band.

Gasoline played a big role in the sharp deceleration over December, but that was broadly expected. Instead, food purchased from stores was very much the story of the release, with year-over-year price growth slowing from 4.7% in December to 3.4% in January—the most modest advance since Summer 2021. However, shelter reaccelerated in January (6.2% y/y from 6% in December), thanks to sustained upward pressure on rents (graph 1).

Further unpacking the data, indicators of underlying inflation unanimously moved in the right direction in January. The Bank of Canada’s preferred measures of core inflation—CPI median and trimmed mean—were modestly lower than in December on a year-over-year basis. But on a 3-month annualized basis, these measures averaged a deceleration of 0.4 percentage points to reach 3.3% and 3.2%, respectively (graph 2). In contrast, the traditional measure of total CPI inflation excluding food and energy measured the same way slowed sharply to 2.4%. 

There is a lot to like in today’s inflation release. Every measure of inflation came in below expectations. At 2.9% y/y, headline inflation is starting Q1 2024 off below the Bank’s forecast of 3.2% in the January 2024 Monetary Policy Report. Along with ongoing weakness in the Bank’s consumer and business surveys, January’s deceleration in inflation helps to reinforce the case for rate cuts to begin in Q2 2024. This despite the surprising strength of the Canadian economy at the end of 2023 and start of 2024. 

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.