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Inflation ticks higher in January, rate-cut speculation eases

Shoppers at a B.C. supermarket in this file photo. Statscan said Friday that inflation ticked higher in January, in part because of higher food costs.

Simon Hayter/The Globe and Mail

Bank of Canada governor Stephen Poloz can start to breathe a little easier about disinflation.

The consumer price index rose a higher-than-expected 1.5 per cent in January, paced by a 2.1-per-cent jump in shelter costs, Statistics Canada reported Friday.

The rise was higher than December's 1.2-per-cent reading.

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Inflation is now running at its fastest pace in 19 months, but remains below the central bank's official 2-per-cent target.

The rise from December to January was 0.3 per cent, unadjusted for seasonal fluctuations, compared to a 0.2 per cent decline in December.

Bank of Montreal economist Benjamin Reitzes said the January CPI report "should ease fears about persistently underperforming inflation at the Bank of Canada."

And that could dampen speculation the central bank might lower its key interest rate, which has been fixed at one per cent since September 2010.

Falling prices, or exceptionally low inflation, can be an economy-killer because it discourages hiring and spending.

Royal Bank of Canada assistant chief economist Dawn Desjardins said the she expects inflation to "drift higher" in the near term. Nonetheless, she expects the central bank to keep its key overnight rate at 1 per cent until early next year.

The core inflation rate, which strips out volatile food energy prices, rose at an annual pace of 1.4 per cent.

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On a month to month basis, four of the eight broad categories saw price increases in January, including clothing and footwear (up 0.3 per cent), shelter (up 0.5 per cent), recreation (up 0.8 per cent), health and personal care (up 0.2 per cent). Those offset lower prices for transportation (down 0.4 per cent), and alcohol and tobacco (down 0.2 per cent). Prices for food and household equipment were flat.

Seven of the eight components that make up the CPI recorded gains in the 12 months to January. Prices for transportation and food contributed the most to the rise in the CPI. The health and personal care index was the only component to decline on a year-over-year basis in January.

Mr. Poloz's repeated warnings about exceptionally low inflation have triggered speculation the bank might lower its key interest rates. That has also helped push the Canadian dollar lower.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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