Quicknote: Clues from Canada's latest inflation print

One of the countries we look at closely is Canada given the diversified nature of its economic base and also its exposure to commodities, particularly industrial commodities. Canada’s central bank (BOC) previously announced plans to pause its interest rate increases as they await inflation data and the impact of the most recent hikes on the economy.

Earlier this month, the BOC said “In January, we said we expect to pause rate hikes while we assess the impact of what we’ve done so far. This pause is conditional: it depends on whether the economy develops as we think it will and whether inflation continues to fall…”

With that in mind, Canada’s January inflation came in slightly lower than expectation last night at 0.5% for January compared with market expectations at 0.7%. But the core number of 0.3% which slightly above expectations of 0.2%. All in all, it’s a positive set of numbers and shows that the impact of recent rate rises is starting to work in limiting goods inflation.

Accompanying the inflation data was retail sales, which grew by 0.5% in line with expectations. Retail sales excluding auto were down 0.6% compared to market expectations of a 0.1% fall. Again, confirming that the BOC has managed to slow down its rate of inflation growth, for the time being.

Bottom line: We can’t look too much into Canada’s January numbers, they only represent a single month. However, Canada does tend to signal data a couple of months ahead of the trends experienced in other countries, like Australia, where the fundamentals are similar. All eyes are now on the BOC to see if they maintain their current stance at the next meeting on 8 March.