The soaring oil prices offset the GST tax cuts, and Canada's inflation rate rebounded to 1.9% in January
Statistics Canada reported on Tuesday that Canada's annual inflation rate rebounded to 1.9% in January.
The federal government's GST/HST tax exemption policy took effect throughout January, but the rise in oil prices offset this relief measure, leading to an accelerated rise in core inflation.
Data shows that gasoline prices at gas stations across Canada have increased by 8.6% year-on-year, with Manitoba experiencing the largest increase at 25.9%, mainly due to the resumption of provincial fuel taxes in Manitoba after their suspension in 2024.
In January, natural gas prices increased by 4.8% year-on-year. Due to increased demand, natural gas prices in Ontario and Quebec rose, while oversupply in the same period last year led to lower prices.
Stephen Brown, Deputy Chief Economist for North America at Capital Economics, stated in a report to clients that "the federal Goods and Services Tax (GST) relief has kept the overall inflation rate below the target range of 2% in January, but it is clear that potential inflationary pressures are increasing
He pointed out that this indicates that the monetary easing cycle of the Bank of Canada may be coming to an end, but the ultimate direction of monetary policy still depends on whether US President Trump will soon impose high tariffs on Canadian imports.
The Bank of Canada has lowered its benchmark interest rate to 3%, with the most recent rate cut in January.
Restaurant food prices fell by 5.1% year-on-year, hitting a historic low, mainly due to tax relief policies. Similarly, the price of alcoholic beverages decreased by 3.6% year-on-year. However, this temporary tax relief ended last weekend.
Statistics Canada stated that without this tax relief, the annual inflation rate in January would have risen from 2.3% in December to 2.7%.
The cost of mortgage interest remains one of the factors driving up inflation, with a year-on-year increase of 10.2%. However, this is the 17th consecutive month of slowing down in mortgage interest growth, which has continued to decline since reaching a peak of 30.9% in August 2023.
Royce Mendes, Head of Macro Strategy and Managing Director of Desjardins, stated that he still believes that the central bank will maintain interest rates unchanged at the March meeting due to the increasing inflation component growing at over 3% in January. However, this decision will still depend on the latest developments in tariff policies and upcoming economic data.
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https://www.ctvnews.ca/business/article/canadian-annual-inflation-rose-to-19-in-january/
https://toronto.citynews.ca/2025/02/18/statistics-canada-set-to-release-january-inflation-figures-today/