Rising energy costs pushed Canada’s inflation rate up to 1.9 per cent in January despite a national GST holiday, Statistics Canada said on Tuesday.

The slight acceleration in both headline and core measures of inflation had markets trimming bets that the Bank of Canada will cut its policy rate next month.

Energy prices were 5.3 per cent higher than last January, driven by increases for gasoline and natural gas. Prices at the pump increased 8.6 per cent on a year-over-year basis, with  Manitoba reporting the biggest jump due to the reintroduction of the provincial gas tax that was suspended in 2024. Natural gas prices rose 4.8 per cent in January over last year and six per cent on a monthly basis, with British Columbia reporting the biggest increase.

January inflation was up from the 1.8 per cent increase recorded in December despite downward pressure on prices due to the temporary GST/HST break introduced by the federal government in mid-December. Overall food prices declined by 0.6 per cent, the first yearly drop since May 2017, driven by a decrease in the price of food purchased in restaurants, which fell by 5.1 per cent. Prices for alcoholic beverages purchased in stores, meanwhile, declined by 3.6 per cent in January. The tax holiday ended on Feb. 15.

Excluding the impact of the temporary tax break, the consumer price index was up 2.7 per cent in January, down slightly from 2.9 per cent recorded in January 2024.

Core inflation, the measures the Bank of Canada prefers to look at when making its monetary policy decisions, accelerated from December. CPI-common was up 2.2 per cent year-over-year in January, compared to two per cent the month before. CPI-median rose 2.7 per cent a year-over-year basis, compared to 2.6 per cent in December. CPI-trim was up 2.7 per cent last month, after it rose 2.5 per cent in December.

“It remains to be seen just how much weight the bank will put on the data, given the heightened level of economic uncertainty and the prospect of tariffs ahead that could detonate the domestic economy,” said David Rosenberg, founder and president of Rosenberg Research Inc., in a note.

Shelter inflation was up 4.5 per cent in January, the same as the month before, while new passenger vehicle prices rose 2.3 per cent, compared with a 0.9 per cent increase in December.

“Shelter prices, previously a consistent driver of headline inflation, are continuing to ease,” said Canadian Imperial Bank of Commerce senior economist Andrew Grantham, in a note. “In fact rents fell slightly month-over-month, which was the first decline since August 2022, and market data suggests that further declines could be seen ahead.”

Grantham says CIBC still expects the Bank of Canada to lower the overnight rate to 2.25 per cent this year, but remains unsure of the path of cuts, given the uncertainty around tariffs.

The central bank’s policy rate currently sits at three per cent. In January, the Bank of Canada cut by a quarter point after back-to-back cuts of 50 basis points in October and December. Markets have now priced in the odds of a 25 basis point cut next month at just over a third.

Bank of Montreal chief economist Douglas Porter thinks there are no “big surprises” from January’s inflation reading and continues to think the Bank of Canada will hold its policy rate at next month’s decision. However, like Grantham, Porter said this could be changed by the potential levying of 25-per-cent tariffs against Canadian and Mexican goods at the beginning of March.

“As the GST holiday lifts from the data in the next two months, the headline tally will likely quickly rise to roughly match current core trends of closer to 2-2.5 per cent, which have been a tad warm for comfort in recent months,” he added in a note to clients.

Rosenberg said the weak Canadian dollar had its “thumbprints” on the inflation report, but as long as the economy remains in excess supply, the inflation trend should continue to point downward.

“One can argue by looking at all the metrics in this CPI report that the downtrend in underlying inflation has stalled out of late — but we see this as a pause and nothing else,” he said.

— with additional reporting from Bloomberg News

• Email: jgowling@postmedia.com

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