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Data released today showed that the Consumer Price Index rose 0.1% in January in Canada (1.4% annual rate, down from 2%). Matthieu Arseneau, an analyst at National Bank of Canada, points out that despite the weak headline number, core numbers remained resilient.

Key Quotes:

“Inflation was in line with expectations for January. This weakness was in the cards as gasoline prices dropped for a 6th consecutive month and a reversal was expected following the December’s surge in the air transportation component. It would have been worse if it was not for the outsized gain in the rent component which rose 0.9% (a ten standard deviation move), the largest monthly increase in 30 years.”

The central bank should not give too much attention to this monthly weakness as it was far from being widespread among components. Indeed, the Bank of Canada’s preferred measures, which are less affected by moves in specific components, were rather strong in January as shown by our in-house replication of CPI-Trim and CPI-median, rising both 0.2% on a monthly basis. On a year on year basis, the average of the three core measures remains close to 2%, the midpoint of the Bank of Canada’s inflation target range.”