A new report from Statistics Canada Tuesday shows inflation slowed to 2.3 per cent in January, down from 2.4 per cent in December. The decline was mainly due to lower gasoline prices, while other essential costs such as food and shelter remained elevated.
William Huggins, assistant professor of finance and business economics at McMaster University, said the latest figure reflects a return to normal conditions after the inflation surge of recent years.
“After the big spike in inflation at the end of 2021, we are now back to a totally normal inflationary environment, 2 to 2.5 per cent,” Huggins said. “It was a favourable price report.”
Huggins said that much of the decline was tied to falling gas prices rather than broad-based price relief.
“You have to distinguish between the core rate of inflation, which strips out the prices that are the most volatile,” Huggins said. “Gasoline prices are fairly important in this report.”
Core inflation, which excludes energy and other volatile items, paints a steadier picture and remains closer to the Bank of Canada’s two per cent target.
While the slowdown may sound encouraging, the impact on household budgets may be gradual rather than immediate.
“Lower income groups are the ones who will benefit the most,” Huggins said.
Noting that essentials such as food and fuel make up a larger share of their spending.
But Huggins also said that not all prices are easing.
“It really is heterogeneous,” Huggins said. “Some prices have gone up a lot more than the overall rate of inflation. Other prices have gone down.”
Energy bills, for example, remain high following a colder-than-usual winter in parts of Ontario. Car insurance premiums have also been rising faster than the overall inflation rate, continuing to squeeze household budgets.
David Gray, a professor of economics at the University of Ottawa who specializes in labour economics and income mobility, said consumer confidence often improves when inflation slows.
“When inflation slows down, that tends to boost consumer confidence, all other factors held constant,” Gray said.
Gray said that confidence also depends heavily on job security and wage growth.
“The state of the labour market and income growth matter just as much as inflation,” Gray said, noting that if wage growth keeps pace with prices, households may slowly regain purchasing power.
Housing costs, a major driver of inflation in recent years, also showed signs of stabilization. Shelter price growth slowed to 1.7 per cent year over year, and rent increases eased in several regions.
“It’s not good news for homeowners, but it is good news for people who want to buy a home,” Huggins said. “The incredible escalation in home prices hasn’t really reversed yet, but it certainly has stabilized.”
Huggins said housing sales remain slow, partly due to broader economic uncertainty and ongoing trade tensions.
Looking ahead, both economists expect inflation to remain relatively low if economic growth continues at its current modest pace.
“I expect it to be pretty low and stable,” Gray said.
The economy isn’t growing very fast, but the Canadian dollar is strong. A strong dollar makes imported goods cheaper, which helps keep prices from rising too much.
Experts said there is little reason for Canadians to adjust their financial plans based on January’s data.
“Probably not very much at all, because it wasn’t a negative surprise,” Huggins said.
Prices are not rising too fast right now. But experts said unexpected problems could still make prices go up again.
So even though things seem stable, you probably won’t see much difference when you shop.
