Inflation rose to 1.9% in January, with low prices on GST-free goods offsetting high energy costs

Canada's consumer price index rose to 1.9 per cent in January, as higher energy prices weighing on overall inflation were partly offset by the federal government's tax holiday, Statistics Canada said on Tuesday.

January marked the first full month that the GST holiday was in effect — temporarily lowering the price of products to which the tax is usually applied, including restaurant meals, alcohol bought in stores, plus toys, some games and hobby supplies.

Meanwhile, energy prices rose 5.3 per cent on a yearly basis in January, a sizeable jump from the month before.

Gas pump prices rose 8.6 per cent last month compared to a year earlier, with the largest increase happening in Manitoba, where a provincial fuel tax was re-introduced at a lower rate. With gas excluded, inflation came in at 1.7 per cent.

Food inflation fell slightly compared to the same period last year, marking the first yearly decline since May 2017. The decrease was led by a record decline in the price of food bought at restaurants.

Andrew DiCapua, principal economist at the Canadian Chamber of Commerce, wrote in a note to clients that while the GST holiday helped lower prices for food, alcohol and clothing, "that relief was overshadowed by higher energy prices which kept overall inflation pressures elevated."

"Core inflation still shows persistent underlying pressures, and volatile elements like energy will continue to swing the numbers in the months ahead," wrote DiCapua.

"Even so, stronger inflation amid retailers' price discounts and budding economic activity in the fourth quarter will likely give the Bank of Canada some confidence to hold interest rates steady at its March meeting."