Softer CPI boosts BoC easing flexibility – RBC

Royal Bank of Canada’s (RBC) Nathan Janzen notes that Canadian CPI slowed in January, with headline inflation at 2.3% and ex‑tax measures at 2.1%. The Bank of Canada’s core trim and median metrics eased to an average of 2.5%, giving policymakers more flexibility to cut rates if needed, although RBC’s base case does not assume further reductions despite still‑elevated grocery and services prices.

Softer inflation supports policy flexibility

“Lower inflation reading leave the BoC with more flexibility to respond to weakening economic conditions with lower interest rates if necessary, although we do not expect as a base-case that additional reductions will be needed.”

“The Bank of Canada’s core trim and median measures — designed to provide a better gauge of underlying price growth and, critically, exclude changes in indirect taxes — continued to edge lower, dropping to 2.5% on average on a year-over-year basis (2.6% in December) on a smaller than expected 0.1% month-over-month change.”

“Excluding indirect taxes price growth slowed to 2.1% year-over-year from 2.5% in December.”

“Both measures remained above the BoC’s 2% inflation target at 2.4% and 2.5%, respectively, but averaged just a 1.2% annualized rate over the last three months.”

“Still the share of the overall consumer price basket seeing unusually high price growth continued to edge lower — by our count, about 23% of the CPI basket was growing at above a 5% rate over the last three months, down from 28% in December and 30% in November.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)