Inflation trend does not look quite as bad as it did a few days ago – Commerzbank

Inflation cooled drastically in Canada in January. Economists at Commerzbank analyze the latest Consumer Price Index (CPI) report and its implications for the Bank of Canada (BoC) policy outlook.

Finally, inflation seems to go down

Instead of another month-on-month increase in the headline rate, prices actually fell quite a bit from December, by -0.12% on a seasonally adjusted basis. This resulted in the lowest year-on-year rate since June last year when hopes were high that Canada’s inflation problem would soon be a thing of the past. The two main measures of core inflation also posted month-on-month readings in line with the inflation target.

The Bank of Canada must have taken Tuesday’s figures with great relief. After all, this may have been the first sign that interest rate hikes may be enough to bring inflation back under control in the near future. Still, one data release is unlikely to represent a trend reversal, so we should wait a few more months before drawing any firm conclusions. For the time being, however, the inflation trend in Canada does not look quite as bad as it did a few days ago.