Bank of Canada's job 'far from done': What economists are saying about the inflation data

financialpost.com:

Canada’s consumer price index rose 1.8 per cent in December from the year before, less than the 1.9 per cent increase expected by economists, giving the Bank of Canada a final data point before it meets Jan. 29 to announce its next interest rate decision.

Statistics Canada on Tuesday said the federal government’s GST/HST tax holiday on certain goods, including food at restaurants and alcoholic drinks, contributed to slower inflation growth in the month.

The agency, which calculates the price of goods including consumer taxes, said the CPI rose 2.1 per cent in December when food is excluded.

Here’s what economists think the data means for the Bank of Canada and interest rates.

Canadians should expect some inflation volatility and a rebound above two per cent in March once the effects of the GST/HST tax holiday fall out of the mix, economist Michael Davenport at Oxford Economics Canada said in a note.

He also expects inflation to get another “bump” in April when the federal carbon tax levy is scheduled to increase, while threats of tariffs from the United States “and the potential elimination of the carbon tax with a change in government risk driving more inflation volatility in the year ahead.”

Sifting through the “weeds” of the December CPI report, Davenport said “inflationary pressures still appear benign.”

The Bank of Canada has previously said it sets aside temporary effects on inflation, such as the current tax holiday, and instead focuses on broader trends and the state of economic slack.

“(That) will keep it on track to cut rates 25 basis points later this month,” he said.

“The Bank of Canada’s job is still far from done even after the cumulative 175 basis points of rate cuts from the five per cent cycle peak to