The tamer-than-expected inflation report from Statistics Canada gives Mark Carney more flexibility to keep borrowing costs on hold until about midyear, but that wiggle room isn't likely to be extended.
At this point, higher costs for energy and food aren't pushing other prices up and generally aren't putting any pressure on wages thanks to a 7.8-per-cent unemployment rate. Mr. Carney, the Bank of Canada governor, pays closest attention to year-over-year changes in core inflation, which strips out things like gasoline, electricity and most groceries. It slowed in January from the previous month's pace, by a tick, to 1.4 per cent.
Indeed, if anything, elevated commodity prices are not only pinching households' bottom lines already but also fuelling consumers' expectations that energy and food costs will keep rising, all of which is causing them to cut down on things like clothing and computer equipment and, in turn, forcing retailers to charge less for their goods.
Moreover, Statscan's next inflation report could show an even slower annualized pace for core prices, since February 2010 was the month when the numbers were skewed because of hotels in Vancouver that charged exorbitant rates during the Winter Olympics. (Recall that in one case, a hotel that normally marketed itself as a discount option was charging $1,200 a night for a suite that sleeps six people, a steep markup from the usual maximum of $280.)
So, for a little while longer, Canada remains firmly in the camp of advanced nations that don't need to be immediately concerned about their recoveries spurring runaway price gains, due to a combination of: leftover slack in the labour market; intense, Wal-mart-driven competition among grocery chains and the fact that food makes up a small part of Canada's consumer price index; and the fact that even as higher world energy prices squeeze Canadians at the pump they also keep the loonie around parity, making imported goods cheaper.
That means there's zero chance of Mr. Carney stepping off of the sidelines and raising his benchmark rate from the current 1 per cent on March 1, and very little likelihood that he'll do so at his April 12 decision.
The next day, Mr. Carney releases his latest quarterly economic forecast, including the latest assessment of when the economy will be back at full tilt and when core inflation will be back at his 2-per cent target. In January, the central banker said neither would happen before the last quarter of 2012.
A shift in that timeline would show Mr. Carney and his deputies see inflation pressures building throughout the economy more quickly, which would suggest they might need to embark on a longer and more aggressive tightening campaign than anticipated.
There's already some pleasantly surprising evidence that the accelerating U.S. rebound is starting to benefit Canada. Trade figures last Friday showed that in December, tax cuts and other measures to speed up the U.S. turnaround helped Canadian exporters clock their best month in three decades. A week before that, jobs data showed more young people flocking back to the labour market, which many analysts attributed to the perception that steps taken to spur a faster recovery in the U.S. will mean more work on this side of the border.
Also, at least three of Canada's major banks increased several of their posted and special mortgage rates last week, and that will continue as the recovery allows financial institutions to gradually return to pre-crisis lending conditions.
Even David Madani of Toronto-based Capital Economics, one of the more dovish forecasters on Bay Street, says the full impact of "the 85-per cent surge in agricultural commodity prices since mid-2010'' has yet to fully feed through to the rest of the economy. And don't weep for clothing stores, Mr. Madani suggests, since the 150-per cent spike in global cotton prices over the past year will help them raise their prices again before too long.
Again though, unless Mr. Carney tips his hand in the statement accompanying his decision just over a week from now, circle April 12-13 on your calendar for the next clues about how concerned he is about inflation.