Inflation rate rises to 1.5% in January

Canada's annual inflation rate rose to a higher-than-expected 1.5 per cent in January, powered by increased shelter, transportation and food costs.

While still modest, that's up significantly from December's rate of 1.2 per cent and represents the highest annual inflation rate since June 2012.

Economists had expected the inflation rate to edge up slightly to 1.3 per cent.

Statistics Canada said seven of the eight major components of the consumer price index were up from a year ago. Higher electricity and insurance costs pushed up shelter costs.

Rising gasoline prices increased transportation costs.Gas prices jumped4.6per cent in January and rose another 4.7 per cent in December.

Food prices wereup 1.1 per cent over the past year.

Core inflation, whichexcludesthe most volatile items in the consumer price index, increased slightly to 1.4 per cent last month. The core ratehad been 1.3 per cent in December.

Rate cut considered unlikely

In a statement accompanying its last interest rate decision in January, the Bank of Canadasaid it expectedinflation to remain lower than previously anticipated for the next little while.

The central bank, which has said that persistently low inflation is a sign of a weak economy, hadsignalled that it doesn't expect the inflation rate to return to its two per cent target for another two years.

So today's numbers should provide some reassurance, according to BMOeconomist Benjamin Reitzes.

"These figures should bring some relief to the Bank of Canada, amid heightened concern about persistently underperforming inflation," he said in a morning commentary. "Indeed, these suggest thatthe BoCs Q1 projections for inflation will likely be on the low side."

Analysts say the higher-than-expected inflation reading will likely put an end to any talk that the Bank of Canada might trim interest rates later this year to stimulate the economy.

"The [Bank of Canada's]been sitting at a neutral position for a while, but expressing concern about low inflation," said Eric Lascelles, chief economist at RBC Global Asset Management. "You have to think that concern starts to abate now," hesaid.

The Canadian dollar pared its early morning losses following the release of the inflation data. The loonieended the trading day at 89.82 cents US, down 0.28 cents from Thursday's close.