Plunging Gas Prices Slow January Inflation to 1.0%: Statistics Canada

By Rennie, Steve | The Canadian Press, February 26, 2015 | Go to article overview

Plunging Gas Prices Slow January Inflation to 1.0%: Statistics Canada


Rennie, Steve, The Canadian Press


Inflation slows to 1.0% in January: Statcan

--

OTTAWA - Rate cut? What rate cut?

Thursday's sluggish January inflation reading from Statistics Canada is the latest signal to many economists that another interest rate cut is not likely to be in the cards on Wednesday at the Bank of Canada's next policy meeting.

"Developments that have taken place since the last Bank of Canada meeting last month suggest that another rate cut in March is unlikely," Dina Ignjatovic of TD Economics wrote in a note to investors.

"Today's inflation data is slightly ahead of the Bank's forecast. As such, we now expect the Bank to leave rates unchanged for the remainder of the year."

Bank of Canada Governor Stephen Poloz this week appeared to throw cold water on the notion that another rate cut is in the offing.

The central bank caught people by surprise last month when it slashed rates by a quarter of a percentage point to 0.75 per cent -- and Poloz said this week that the move bought him some more time to gauge how a dramatic plunge in oil prices might affect Canada's books.

"The downside risk insurance from the interest rate cut buys us some time to see how the economy actually responds," he said in a speech at Western University in London, Ont.

Slumping oil prices continue to send shock waves through Canada's economy by dragging down the loonie, forcing oil companies to cut spending plans by billions of dollars and hammering housing markets in the West.

Cheaper gas has also been a drag on Canada's annual inflation rate, which slowed to 1.0 per cent in January, Statistics Canada said Thursday.

The reading followed a rise of 1.5 per cent in December, which was also a deceleration from the previous month. Economists had expected the rate for January to come in at 0.7 per cent, according to Thomson Reuters.

Gas prices in January were at the lowest they've been since April 2009. Prices at the pump fell 26.9 per cent in January compared with the previous year.

The lower cost of gas also counterbalanced rising prices in seven of the eight categories in the agency's report.

Most of the drop in gas prices has occurred within the last six months. …

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