Canada’s annual inflation rate dropped to 5.9 percent in January, despite grocery prices increasing at a faster rate. Statistics Canada reported that the deceleration from 6.3 percent in December was due to a base-year effect. This refers to the impact of price movements from the previous year on the calculation of the annual inflation rate. The last time Canada’s annual inflation rate was below six percent was in February 2022 when it was 5.7 percent. The lower-than-expected rate was good news for the Bank of Canada. Last month, the Bank of Canada raised its key interest rate for the eighth consecutive time since March 2022, bringing it to 4.5 percent.
Grocery prices rose 11.4 percent year-over-year, faster than the 11 percent increase in December. Prices for meat, bakery goods, and vegetables all rose faster. On a monthly basis, higher gasoline prices drove the overall price level higher than in December. Consumers paid less for cellular services in January compared with a year ago, and prices for passenger vehicles also slowed, partly due to supply chain problems a year ago.