Inflation rate jumps to 2.1% on higher gasoline and shelter costs

The cost of living in Canada rose by 2.1 per cent in the year up to January, a sharp increase from the pace in December.

Statistics Canada reported Friday that the annual inflation rate rose to 2.1 per cent last month,from 1.5 per cent. Economists had been expecting the January figure to come in at around 1.6 per cent.

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The data agency cited two major added expenses for the increase: the cost of shelterand transportation.

The transportation index increased by 6.3 per cent, led by gas prices, which increased by more than 20 per cent in the previous year the biggest jump since September 2011.

Shelter costs rose by 2.4 per cent.

Of the eight parts of the consumer economy that Statistics Canada tracks, only one got cheaper: consumers paid2.1 per cent less for food in January than they did a year earlier,the fourth consecutive monthly decline.

The Bank of Canadadoesn't tighten policy because of what it costs you to fill your car.- Derek Holt,Scotiabankeconomist

January is typically a seasonally strong period for inflation, as most price increases generally comein the first five months of the year, BMO economist Benjamin Reitzes noted before the numbers came out.

His colleague Doug Porter said that in addition to that seasonality, energy prices were also pushed up in January compared with where they were last year because ofnew carbon taxes in Ontario and Alberta.

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"Canadian inflation is certainly not immune to the forces pulling headline price trends higher around the industrialized world," Porter said, noting that the U.S. rate jumped to 2.5 per cent in January and it's now 1.8 per cent in the euro area.

There too, the uptick is "mostly due to the rebound in energy prices," Porter said.

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While the headline inflation number might ordinarily encourage Canada's central bank to raise interest rates, Scotiabank economist Derek Holt notes that's not likely in this case since increase isalmost entirely related to the energy sector. Strip out gasoline prices, and Canada's inflation rate drops to a much more reasonable 1.5 per cent, he noted.

"The Bank of Canadadoesn't tighten policy because of what it costs you to fill your car," Holt said.