Canada's annual inflation rate has been slowing since the summer, but economists are predicting that higher fuel prices in January may have hindered that trend.
Economists have been encouraged by recent month-to-month trends, which have shown prices have been rising at a slower pace."January is ... looking like it's going to be a little bit of a setback," said TD director of economics James Orlando, also noting that a one-month uptick"doesn't mean that February won't go back down to trend."
While TD is forecasting price growth accelerated between December and January, it is anticipating the annual inflation rate for January to come in at 6.2 per cent. CIBC is forecasting a slight increase to 6.4 per cent. "It's probably not coming down as fast as most Canadians want but has been one of the real slow moving pieces of inflation," Orlando said.That's in part due to how inflation is calculated. Given most of the acceleration in price growth happened last spring and early summer, the annual rate is expected to fall significantly in the coming months.
Last month, the Bank of Canada hiked its key interest rate for the eighth consecutive time since March 2022, bringing it from near zero to 4.5 per cent. That's the highest it's been since 2007. At the time, the central bank said it would take a"conditional" pause to assess the effects of higher interest rates on the economy.
Orlando said a slight acceleration in prices during one month won't sway the Bank of Canada to raise interest rates, noting the bar for further rate hikes is now higher.
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