Canadian Consumer Price Index (January 2025)

Canadian inflation moves higher in January

• Headline CPI inflation increased in January to 1.9% year-on-year (y/y), slightly above expectations for a 1.8% y/y print and more than the 1.8% y/y reading from December. 
• The Bank of Canada's preferred "core" inflation measures also increased to 2.7% y/y, from 2.6% y/y in December. 
• Energy prices were the main driver of higher inflation, with gasoline up 8.6% y/y and natural gas up 4.8% y/y. Car prices also moved higher by 2.3% y/y, the first increase in 8 months. 
• The impact of the GST/HST break continues to act as a downward force on inflation. Restaurant costs dropped 5.1% y/y, while alcohol costs dropped 3.6% y/y.

Key Implications

• Headline inflation remains close to the BoC's 2% target, but there are signs that price pressures could move higher in the months to come. The GST/HST holiday has officially ended and the downward pressure on overall inflation will unwind. Stripping out this impact, inflation would have been 2.5% y/y, 0.6 percentage points higher than the headline print. Additionally, the three-month annualized trend of core inflation has been tracking above 3%, signaling that core inflation should continue to grind higher. 
• The BoC is in a difficult place. Does it weigh the downside risks to the economy in the face of U.S. tariffs, or does it focus on recent economic strength and the impact this is having on inflation? Markets are still pricing for another 25 bp cut in March, but price action this morning is paring back some of this. There is plenty of time between now and March 12th, and if the President's first few weeks are anything to go by, a lot could change before then. 

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