Feb 21, 2023

January 2023 CPI: Steady progress as inflation continues to slow

It was another step in the right direction as January’s data show inflation is slowly coming back under control. Both headline and core inflation declined to 5.9% and 5.1% year-over-year, respectively. The decline was broad-based, however food prices and rising mortgage rates remain problem areas. While this is welcome news on the heels of the Bank of Canada’s pause in January, inflation remains well above target. Given stronger-than-expected job numbers, resilient household spending, and further rate increases planned in the U.S., the door is not completely closed on another BoC rate hike in March, but it remains unlikely.


  • It was another month of progress in the Bank of Canada’s fight against inflation, as Canada’s headline Consumer Price Index (CPI) inflation grew at a slower pace of 5.9% year-over-year in January, which was better than the market expectation of 6.2%.
  • January’s data also show modest improvements for core inflation. The average of the Bank’s two preferred “core inflation” measures declined to 5.1% year-over-year.
  • Note that much of the slowdown in year-over-year inflation number in today’s data — and in the coming months — reflects “base-year effects”. Each month, new price data are being compared against the price level one year ago — and in early 2022, prices spiked up due to supply disruptions and uncertainty after Russia’s invasion of Ukraine.
  • Focusing on shorter-run core inflation (3-month annualized rates) right now provides better signals of underlying price pressures; they are around 3.5% — still too high, but much closer to the top of the Bank’s inflation target range.
  • Most major components of CPI inflation slowed in January, but food inflation accelerated (to 10.4%), and remains a significant burden for consumers. Both grocery and food from restaurants prices rose, mainly due strong demand and supply constraints.
  • Shelter cost inflation cooled for the third consecutive month to 6.6% overall (from 7.0% last month). However, there’s mounting upward pressure from rising mortgage rates (+21% yr/yr in January — the largest gain in over 40 years!) given the sharp increase in rates by the Bank of Canada.
  • Price increases for both goods and services slowed to 6.4% and 5.3% respectively. Cellular services prices fell by 8%, as Boxing Day deals extended into January.
  • Gasoline prices are a key driver at provincial level. It was the main reason for inflation slowing in nine of 10 provinces (and also the reason of increased inflation in New Brunswick). Alberta has the lowest inflation rate (5.0%, after electricity prices fell 46% on the month, related to provincial initiatives).



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