Latest inflation figures: Economists give their verdict

Experts break down the likely effects of Canada's latest CPI results

Latest inflation figures: Economists give their verdict

The latest Canadian inflation numbers represent “a big step” in the right direction that could give the central bank further justification to maintain its rate hike freeze, market observers said.

With the country’s inflation defying initial predictions (6.1% annually) to settle at 5.9% in January, the figure “represents a rare downside surprise in both headline and core inflation,” according to BMO Economics.

Canada was “due for some better inflation luck, with a cooling economy and improved supply chains also contributing,” BMO said in its latest analysis. “Even the short-term metrics on core inflation are getting into a much more manageable zone, which should soon trim the annual rates from their 5% perch.”

BMO said that the inflation level will serve as a valuable litmus test for the Bank of Canada.

“This milder report will provide the BoC with some comfort on their decision to move to a conditional pause, acting as a strong antidote to the run of robust growth figures seen in recent weeks,” the bank said.

Veteran economist Sherry Cooper added that the “meaningful” deceleration in the Canadian economy last month essentially validated the approach that the BoC has adopted after its benchmark interest rate reached 4.5%.

“[Inflation figures] confirm the wisdom of their announced pause in rate hikes at the January meeting,” Cooper said. “Despite continued strength in the labour market and January retail sales, headline and core inflation measures have declined again, with a five handle now on the headline rate. That is still a long way to the 3% inflation forecast by the end of this year, but it is moving in the right direction.”

Cooper is anticipating that the central bank will not take any action on its rates in its upcoming March 8 meeting.

“Their press release will be scrutinized for a hawkish versus dovish tone,” Cooper said, while also emphasizing that “regardless of upcoming data, there is virtually no chance of any rate cuts this year.”