Led by higher prices for petroleum products, manufacturers’ prices, as measured by the Industrial Product Price Index (IPPI), rose 0.3% in January following two months of declines. On an annual basis, the IPPI rose 2%, its sixth consecutive increase.

The January rise was a bit less than expected, but economists don’t expect the numbers to soothe the Bank of Canada.

BMO Nesbitt Burns says that energy prices were the main upward force, as the costs for petroleum and coal products rose 7.5%. “Excluding these components, industrial prices fell 0.3% over the month reflecting the strength of the loonie, which helped limit the overall increase in costs. Excluding the impact of the currency, industrial prices would have increased by 0.7%.”

Nesbitt notes that the Canadian dollar strengthened by 1.2% in the month and had a significant impact on prices that are quoted in U.S. dollars, such as motor vehicles and pulp and paper products, which fell by 1.1% and 1.0%, respectively.

Also, raw material prices rose 5.2% over December levels, and now stand 22.2 % above year-ago levels. Energy prices have also been the catalyst behind raw material price increases, with mineral fuels prices up 46.7% relative to last January, notes RBC Financial. “Stripping out the impact of mineral fuel prices, raw material prices have risen by a more modest 6.4%.”

“Although the Canadian dollar has recently restrained some product prices, the rise in the cost of raw materials suggests that inflation pressure is still a concern,” BMO concludes.

RBC predicts that the Bank of Canada is unlikely to swayed one way or the other by today’s inflation numbers. “On the positive side, the appreciation of the dollar appears to be having a desirable impact in limiting the increases in the price of commodities priced in U.S. dollars. However, with the Canadian economy operating at or very close to full capacity, pipeline price increases that are not nullified by the rise in the Canadian dollar will be passed through to consumers more easily.”

‘The Bank of Canada remains on the edge of a rate hike which is likely to prove the first in a series of rate hikes that we expect will leave the overnight rate at 4.5% by year-end,” says RBC. “Whether the first rate hike comes at the central bank’s March 4 policy meeting or the next one on April 15 could come down to this Thursday’s January CPI inflation release. We suspect that a surprise on the upside would enough to push the Bank of Canada into hiking rates at its March policy meeting given credibility concerns.”