OTTAWA -- The purchasing power of Canadians waned further last month as wages were outpaced by an annual inflation rate that topped five per cent for the first time in more than 30 years.

The annual inflation rate rose to 5.1 per cent in January compared with a gain for 4.8 per cent in December, , driven higher by prices for housing, gasoline and groceries.

Over the same stretch, wages rose by 2.4 per cent, a gap in purchasing power inflamed by rising costs for essentials like food that often hit lower-income households the hardest.

Tu Nguyen, an economist with accounting firm RSM Canada, said households are already looking for ways to buy more with less, either through switching to discount stores or opting for cheaper proteins instead of beef, chicken and fish that all saw faster price increases in January compared with December.

鈥淭he more people have to spend on food, housing and gas, all essential items, the less they are going to have to spend on discretionary items such as entertainment as well as travel,鈥� Nguyen said.

鈥淥bviously, with higher prices and wages not keeping up with it, households might have to pull back on their spending and that in turn might hurt economic growth.鈥�

The strain on households is likely to get worse in the coming months as the drivers of inflation in January continue.

Here's what happened in the provinces (previous month in brackets):

  • Newfoundland and Labrador: 4.0 per cent (4.2)
  • Prince Edward Island: 7.1 per cent (6.7)
  • Nova Scotia: 4.9 per cent (4.8)
  • New Brunswick: 5.3 per cent (5.4)
  • Quebec: 5.1 per cent (5.1)
  • Ontario: 5.7 per cent (5.2)
  • Manitoba: 5.5 per cent (4.7)
  • Saskatchewan: 4.2 per cent (3.5)
  • Alberta: 4.8 per cent (4.8)
  • British Columbia: 4.3 per cent (3.9)

The agency also released rates for major cities, but cautioned that figures may have fluctuated widely because they are based on small statistical samples (previous month in brackets):

  • St. John's, N.L.: 3.5 per cent (3.6)
  • Charlottetown-Summerside: 7.3 per cent (6.8)
  • Halifax: 4.7 per cent (4.4)
  • Saint John, N.B.: 5.1 per cent (4.7)
  • Quebec City: 4.4 per cent (4.9)
  • Montreal: 5.0 per cent (5.0)
  • Ottawa: 5.9 per cent (5.4)
  • Toronto: 5.2 per cent (4.7)
  • Thunder Bay, Ont.: 5.7 per cent (4.7)
  • Winnipeg: 5.1 per cent (4.4)
  • Regina: 4.1 per cent (4.0)
  • Saskatoon: 3.8 per cent (3.2)
  • Edmonton: 4.6 per cent (4.6)
  • Calgary: 5.4 per cent (5.0)
  • Vancouver: 4.3 per cent (3.8)
  • Victoria: 4.3 per cent (3.4)
  • Whitehorse: 3.7 per cent (4.4)
  • Yellowknife: 4.0 per cent (4.9)
  • Iqaluit: 2.1 per cent (2.7)

Gasoline prices were up 31.7 per cent last month compared with January 2021, with the backdrop of mounting concerns over global oil supplies linked to the threat of Russian military action against Ukraine.

Excluding gasoline prices, Statistics Canada said the annual rate of inflation would have been 4.3 per cent in January, which the agency noted was the fastest pace it has on record.

BMO chief economist Douglas Porter said gasoline prices are up again this month, meaning Canadians shouldn't expect any relief when the February inflation report comes out.

Prices for groceries in January were up year-over-year by 6.5 per cent - the largest yearly increase since May 2009 - because of higher shipping costs linked to global supply chain issues.

Grocery prices are set to go higher in February because of protesters blockading key border crossings, and a big jump in dairy prices at the start of the month, CIBC senior economist Andrew Grantham said.

Shelter prices rose 6.2 per cent year-over-year, the fastest pace since February 1990, driven by higher prices for new homes as well as rent increases. Canada's hot housing market should cool if the central bank hikes rates, though Nguyen said hikes alone won't solve the problem of low supply of, and high demand for housing.

The central bank has kept its key policy rate at 0.25 per cent since the onset of the COVID-19 pandemic in March 2020, but recently dropped its promise to hold the rate at emergency levels.

The Bank of Canada is expected to raise rates at its next scheduled interest rate announcement in two weeks, in what's likely the first of several hikes over the course of the year designed to cool inflation.

In a speech Wednesday, Bank of Canada deputy governor Timothy Lane said the central bank still expects inflation rates to come down quickly in the second half of the year, but noted inflation may, again, prove more persistent.

He said the bank would use its tools forcefully, if necessary.

鈥淎ny policy involves risk, but inaction is often riskier,鈥� Lane said in the text of his speech. 鈥淚t's important to take those risks, but it's equally important to fully understand them and be transparent in communicating their nature.鈥�

During an ensuing question-and-answer session with the University of Calgary's school of public policy, Lane said senior bank officials would also be assessing the potential impact of border blockades on the economy during deliberations on the path for interest rates.

The average of the three measures for core inflation, which are considered better gauges of underlying price pressures and closely tracked by the Bank of Canada, was 3.2 per cent for January, up from the 2.93 per cent reported in December.

Statistics Canada said that was the fastest pace recorded since August 1991.

This report by The Canadian Press was first published Feb. 16, 2022