• Headline Canadian CPI surprised at 5.1% YoY versus the expected 4.8% reading for January.
• Core and various other BoC measures were all also stronger versus December and market expectations. 
• The loonie saw some initial strength, with the latest data strengthening the argument for swift removal of BoC monetary accommodation this year.

The headline Canadian Consumer Price Index (CPI) rose at an annual pace of 5.1% in January, above median economist forecasts for a pace of 4.8% and above December's 4.8% YoY rate of price growth, according to data released by Statistics Canada on Wednesday. MoM, headline price growth came in at 0.9%, well above the expected 0.6% reading and a sharp acceleration from December's -0.1%. 

Meanwhile, the BoC's Core Canadian CPI came in at an annual pace of 4.3%, well above consensus forecasts for 3.5%, powered by a 0.8% MoM rise, which was well above the expected 0.0%. The BoC's Trimmed CPI came in at 4.0% YoY, up from 3.7% in December, the Median CPI rose to 3.3% YoY from 3.0% and the Common CPI rose from 2.1% to 2.3% YoY in January, slightly bigger than the expected leap to 2.2%. That meant the average of BoC measures rose to 3.2% in January from 2.93% the month prior.

Market Reaction

USD/CAD saw an initial blip lower to fresh session and weekly lows in the 1.2660s, though these losses have now been mostly pared, with the currency cross now roughly back to pre-data levels in the 1.2670s. Traders are likely to assess the latest inflation figures as strengthening the argument for swift BoC policy tightening this year, starting with a rate hike (probably 25bps but perhaps of 50bps) in March. The main driver of CAD for the rest of the session is, however, likely to remain geopolitical developments and how this impacts risk appetite and crude oil prices.