Canadian Core CPI Rebounds in January

Headline CPI inflation bounced back to 2.5% in January from 2.3% in December. Core CPI also increased to 2.1% from 1.9% a month before. On a monthly basis, headline CPI was up 0.4%, following a decrease of 0.6% in December. Core prices rose 0.2% after declining 0.5% the month before. On a seasonally adjusted basis, headline CPI was up 0.5% and core prices increased 0.3%. In January, 6 out of 8 major components were up on the month (s.a.) and the two other components remained essentially unchanged (health & personal care and recreation, education & reading). Transportation component registered by far the strongest increase, rising 1.3%. On a regional basis, only two provinces experienced inflation increase (y/y), namely Ontario (from 2.0% to 2.4%) and Quebec (from 2.5% to 2.8%). The sharpest declines were observed in Manitoba (from 2.6% to 2.0%) and in Newfoundland & Labrador (from 3.2% to 2.9%).

OPINION: Canadian CPI Canada’s surprised on the upside in January with both measure exceeding consensus expectations by 0.2% (y/y). Economists already knew that headline CPI will be pushed up by strong gasoline price increase (2.8%) and the increase of the provincial sales tax in Quebec (indirect taxes contributed 0.17% to the price increase m/m). But core prices have been also pushed up by passenger vehicles prices (1.7%) which recouped almost all December’s losses. As a result, core inflation was back again above the BoC midpoint target. It seems that this average is the result of an unusual contribution mix between goods and services. While goods component reached its highest level since 2001 in January, services is actually at a 27 months low (middle chart). Since inflation in goods does not seem to be pushed down anymore by the strength of the loonie and that services prices are registering an unusually low progression historically, we remain confident with our forecast of core inflation running slightly above 2% in 2012. That said, don't expect any changes in the Bank of Canada's stance for now since Carney’s eyes are riveted instead on what happens abroad, particularly in Europe. Otherwise, this morning report also highlighted the elevated gasoline price in Canada. It reached in January its highest level since August 2008 and further increases are possible since Brent oil is up again so far in February (bottom chart).