Inflation in January hits 2.5% on high gas prices

Statistics Canada says rising gasoline prices sent the country's annual inflation rate to 2.5 per cent in January, an increase of 0.2 percentage pointsover December.

On a month-to-month basis, consumer pricesrose by half a percentage point last month compared to December, the agency said, reversing a 0.6 per cent drop in that month from November.

Bank of Montreal deputy chief economist Douglas Porter said the surprise increase in January's inflation was "payback time" for the month-earlier decrease.

The latest inflation numbers "pretty much brings us full circle to where many expected inflation to be at the start of the year," Porter said in a note.

Gasoline prices were the biggest contributor to the rise in inflation,increasing 2.8 per cent from December toJanuary, and 6.8 per cent compared to a year earlier.

On an annualized basis, inflation is being mostly fuelled by two items energy prices, whichhave risen6.5 per cent over last January, and food prices, whichhave increased4.2 per cent over the past 12 months.

The agency says that excluding those two items, inflation would bejust 1.6 per cent.

Pricesrose across the country, and in every province. The lowest rate of inflation was in British Columbia, at 1.7 per cent, and highest in New Brunswick, which saw a 3.2 per cent rise in prices.

Core inflation rises

The annual inflation rate had been on a downward track since the summer, but January's reversal lifted both the headline number and underlying core inflation which excludes volatile items to one tick above the Bank of Canada target to 2.1 per cent.

It's the fourth time in five months that the core inflation rate is above the central bank's target of 2.0 per cent.

"There is no doubt that the Bank of Canada will take this price increase in consideration in its next interest rate announcement," said Jacques Marcil, senior economist at TD Bank.

But Marcil reiterated that TD doesn't expect the central bank to raise its benchmark interest rate until 2013.