Inflation in Canada Quickens to 1.9% on Energy Prices #CanadaFinance

(Bloomberg) — Canadian consumer prices reaccelerated for the first time in three months as the central bank’s preferred core measures are proving sticky.

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The consumer price index rose at a faster yearly pace in January, rising 1.9% and up from 1.8% in December, Statistics Canada reported Tuesday. The slight acceleration — which matched the median economist estimate in a Bloomberg survey — was largely driven by increased energy prices, while a temporary sales tax break helped slow price pressures for food and restaurant meals.

Excluding gasoline, the headline number rose 1.7% in January, down from 1.8% earlier. On a monthly basis, the index rose 0.1% that month, compared with a 0.4% decline in December.

The Bank of Canada’s two preferred core inflation measures also accelerated, averaging a 2.7% yearly pace, versus 2.55% in December. The three-month moving averages of the figure, however, fell to 3.04%, from 3.54% previously.

Traders in overnight swaps pared bets on another quarter-percentage point cut by the bank at its next meeting, putting the odds at just over a third, from about a coinflip last week.

Policymakers slowed down the pace of easing in January after cutting borrowing costs aggressively last year, but said they’re uncertain about the path forward. US President Donald Trump has signaled plans to impose levies of as much as 25% on Canada in March and Prime Minister Justin Trudeau’s government has vowed to retaliate. A tariff war would likely force the central bank to adjust their rate-cut campaign to brace the economy for the impact of tariffs on consumer prices.

The central bank next sets the benchmark overnight rate on March 12. Economists are split into two camps, with one expecting the bank to keep cutting rates and other seeing it pausing amid rising uncertainties. Governor Tiff Macklem has said he wants to strengthen economic growth, and has expected inflation to hover close to the 2% target in coming months, reflecting movements in global energy prices.

“This will not be a welcome development for the Bank of Canada,” Charles St-Arnaud, chief economist at Alberta Central, said in an email. “Stronger underlying inflationary pressures, coupled with a relatively robust labor market in recent months, reduces the likelihood of a cut at the Bank of Canada’s meeting in March. With this in mind, it is becoming likely that the Bank of Canada will opt for a pause at the March meeting to better assess the situation.”

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