- The CPI in Canada rose by 5.9% YoY in January, compared to a 6.3% increase in December.
- Prices for cellular services and passenger vehicles contributed to the deceleration in the all-items CPI, while food and mortgage interest cost continued to rise.
- USD/CAD is ticking up toward key resistance near 1.3500 in the initial reaction to the data.
The just-released Consumer Price Index (CPI) in Canada rose 5.9% year-over-year in January, marking a decrease from the 6.3% increase in December, as per the data released by Statistics Canada.
Canada CPI: The impact of base-year effects
As a reminder, the CPI measures the average change in prices paid by consumers for a basket of goods and services over time. The headline CPI growth rate is calculated as the percentage change between the current month's CPI and the CPI in a base month or the same month of the previous year. “Base-year effects” refer to the impact of price movements from 12 months earlier on the current month's headline CPI.
In the first half of 2022, the global economy was significantly affected by the Russian invasion of Ukraine, leading to a significant increase in prices from January to June 2022. Headline consumer inflation increased from 5.1% in January to 8.1% in June 2022, led by energy products.
This broad increase in prices in the early months of 2022 had a downward impact on the year-over-year rate of consumer inflation in January 2023 since higher prices from January 2022 were used as the basis for year-over-year comparison. Notably, this dynamic will likely continue to drive down Canada’s year-over-year CPI rate further in the coming months.
Canada CPI details
Prices for cellular services fell by 7.9% YoY in January, following a 2.5% increase in December, due to some Boxing Day sales remaining available into January, leading to a decline in prices compared to the same month the previous year.
The price increase for gasoline was the primary contributor to the month-over-month increase in the all-items CPI, rising by 4.7% in January, related to refinery closures in the southwestern United States following winter storm Elliot. On a YoY basis, prices for gasoline rose by 2.9% in January, a slight deceleration from a 3.0% increase in December.
Consumer prices for passenger vehicles rose by 6.2% YoY in January, following a 7.2% increase in December. The price growth slowdown is partly attributable to a base-year effect due to a 0.9% MoM increase in January 2022 when prices were under pressure from supply chain disruptions and higher prices for housing.
Food prices continue to rise YoY, with prices for food purchased from stores up by 6.7% in January, compared to a 6.2% increase in December. Fresh or frozen chicken, beef, and dairy products had the most significant price increases. Restaurant food prices rose by 5.1% YoY in January, led by increases in fast food and take-out prices.
USD/CAD technical analysis
The North American pair has spent most of this year consolidating between about 1.3300 and 1.3500, and after the cooler-than-expected CPI reading, USD/CAD is testing the top of that range again. As the chart below shows, rates are testing their bearish trend line off the October high, as well as horizontal resistance from last month near 1.3500.
With a rate hike from the BOC next month now likely off the table (traders had started to price in an outside chance of another 25bps increase prior to this morning’s data), USD/CAD bulls could look to take the pair through the current resistance level, opening the door for a continuation toward 1.3700 next. However, a failure to break higher despite the current fundamental backing could lead to more consolidation in the well-trodden 1.3250-1.3500 range as we head into March.
Source: StoneX, Tradingview
-- Written by Matt Weller, Global Head of Research
Follow Matt on Twitter @MWellerFX