Canada's inflation rate drops more than expected to 2.9% in January

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OTTAWA (Reuters) — Canada's annual inflation rate cooled much more than expected to 2.9% in January, largely on lower gas prices, while core inflation measures dropped to their lowest levels in more than 2 years, data showed on Tuesday.

Analysts polled by Reuters had forecast inflation to tick down to 3.3% from 3.4% in December. At 2.9%, headline inflation rate is back in the Bank of Canada's 1%-3% control range for the first time since June 2023.

Month-over-month, the consumer price index was unchanged, compared with a forecast of a 0.4% rise.

Two of the Bank of Canada's (BoC) three core measures of underlying inflation also edged down. CPI-median slowed to 3.3%, lowest since November 2021, while CPI-trim decreased to 3.4%, lowest since July 2021.

While the central bank has said single data points are not enough to sway its policy decisions, the cooldown in prices could expedite discussions about a rate cut.

The BoC has projected headline inflation to remain around 3% in the first half of 2024, before cooling down to 2.5% by the end of the year.

The BoC kept its key overnight rate at 5% in January and said that while underlying inflation was still a concern, the bank's focus is shifting to when to cut borrowing costs rather than whether to hike again.

Before its last announcement in January, members of the bank's policy-setting governing council were concerned about cutting borrowing costs too soon, especially as shelter prices continues to keep overall inflation elevated. nL1N3ES30B

Shelter price inflation, which includes mortgage interest costs, rent and components related to house prices, accelerated to 6.2% in January from 6% in December.

The largest contributor to headline deceleration in Janaury was lower gasoline