The National Bureau of Statistics in Canada reported on Tuesday (Feb. 21) that consumer prices in Canada rose at a slower pace in January. This has sent a signal to the Bank of Canada that it may hold interest rates at the current levels next month, despite the strong employment reports. The easing inflation indicates that policy makers have increased interest rates sufficiently to control the price hikes, supporting their decision to stop the aggressive rate hikes at least for the near term.
The Consumer Price Index (CPI), prices rose 5.9% from the previous year, which is lower than economists’ expectations of a 6.1% increase. It is also lower than the 6.3% rise recorded in December. The CPI rose 0.5% on a monthly basis in January, lower than the expected 0.7%.
Following the data release, bond prices went up and the 2-year bond yield fell to a low of 4.149%. The Canadian dollar also fell to 1.3529 to the US dollar.
A director of macro strategy investment management at Manulife said, “The Canadian data clearly and surprisingly show that inflation is likely to decline even more earlier this year and will surely reduce the pressure on the Bank of Canada to make a monetary policy decision in March.”
The Bank of Canada has been steadily raising interest rates since mid-2017 to tackle inflationary pressure. However, the easing inflation in January may prompt the bank to hold off raising interest rates for the time being.