Ahead of inflation data set to be released next week, economists at the Royal Bank of Canada say they expect price increases to slow in January. 

In a report Friday, Nathan Janzen, the assistant chief economist at RBC, and Abbey Xu, an economist at RBC, said they anticipate Canada’s consumer price index to come in at 3.2 per cent in January, lower than 3.4 per cent a month earlier. The economists said they anticipate falling energy prices and slower growth for food prices to contribute to the overall decline. 

“Most of the deceleration we expect in price growth comes from lower energy prices, which the central bank has little to no control over,” the report said. 

“Food price growth also looks likely to ease as a large month-over-month surge in January 2023 falls outside of the year-over-year growth rate.” 

Removing volatile parts of the CPI, like food and energy, the economists said they expect price growth to come in at an annualized rate of 3.4 per cent. 

The report added that interest on mortgage payments continues to fuel inflation. 

“More than a quarter of price growth overall is still coming from higher mortgage interest costs that are a direct result of earlier BoC (Bank of Canada) interest rate increases. If we exclude that component, price growth would already be back within the BoC’s one per cent to three per cent inflation target range,” the report said. 

Unexpectedly strong labour market data in January, coupled with a “bounce back” in home resales have driven worries that Canada’s central bank will have to keep interest rates elevated for longer to bring inflation down, the economists said. 

Despite the need to keep interest rates elevated, the economists also highlighted that consumer demand has “continued to soften on a per-capita basis.” 

Statistics Canada is scheduled to release January’s CPI data on Feb. 20.