The overall annual pace of inflation slowed to 1.9% in December as gains in the price of gasoline eased up, Statistics Canada said Friday.
But economists said the economic strength last year is pushing underlying prices higher.
Toronto-Dominion Bank senior economist Brian DePratto noted that two of the Bank of Canada’s three preferred measures of core inflation, designed to look through the noise of more-volatile items like gasoline, ticked higher last month.
“Looking past the energy-led deceleration in inflation, hot growth of the Canadian economy in 2017 now appears [to be] turning into somewhat hotter price growth,” DePratto wrote in brief note to clients.
CPI-trim — which helps filter out extreme price changes — rose to 1.9% from 1.8% in November, while CPI-common — which filters out prices that changed due to extraordinary circumstances — climbed to 1.6% from 1.5%. CPI-median was unchanged compared with November at 1.9%.
“It provides a little more confirmation that the interest rate hike earlier this month was justified from an economic fundamentals point of view,” DePratto said of the move higher in core inflation.
“That core mandate of the bank is to control inflation and this speaks to the need for further hikes.”
The Bank of Canada aims to keep inflation at 2%, the midpoint of a target range of 1% to 3% over the medium term.
In raising its trendsetting rate to 1.25% last week, the Bank of Canada pointed to unexpectedly solid economic data as key drivers behind the decision.
Canadian Imperial Bank of Canada economist Nick Exarhos also noted that underlying inflation trends appear to be firming.
“Core inflation metrics are trending in the right direction, something that supports the Bank of Canada’s decision to hike rates at the start of 2018,” he said.
“We could see some deflationary pressure from the stronger Canadian dollar, but given minimum wage hikes, a closed output gap, and what is likely to be stronger average pricing for energy over the balance of this year compared to 2017, inflation is likely to accelerate.”
Overall, Statistics Canada said Friday that the consumer price index for the final month of 2017 was up 1.9% compared with the same month a year earlier. That compared with a reading of 2.1% in November.
Excluding gasoline, prices were up 1.5% year on an annual basis in December, matching the increase in November.
Prices were up in seven of the eight major categories as the transportation index, which includes gasoline, and the shelter group led the way.
Transportation prices were up 4.9% from a year ago compared with a 5.9% increase in November. Gasoline, a key component of the group, climbed 12.2% compared with a year earlier following a 19.6% increase in November.
The shelter index climbed 1.4% compared with a year ago as natural gas prices rose 6.2% following a 3.1% increase in November.
Meanwhile, the household operations, furnishings and equipment index fell 0.3% compared with a year ago as the cost of telephone services slipped 5% as the country’s big wireless companies battled for market share in December with deeply discounted offers.