Canada’s core Consumer Price Index (CPI) rose 0.2% month over month in January. This was unchanged from the previous 0.2% reading.
This shows core consumer prices are rising at the same monthly pace as before. Core CPI tracks price changes while excluding some of the most volatile items.
Core Inflation Stays Sticky
Core inflation remains persistent. The latest 0.2% monthly increase in January keeps the annualized pace near 2.4%. That is still above the Bank of Canada’s 2% target. As a result, hopes for a first-quarter rate cut are fading.
This inflation update follows a stronger-than-expected labour report. Canada added 45,000 jobs last month, beating forecasts and lifting wage growth to 4.5%. Strong job growth can support consumer spending, which makes it harder for inflation to cool. The Bank of Canada is likely to view this mix as a reason to stay cautious.
Because of this, we are focusing on options strategies that benefit from a “hawkish hold” by the central bank. Markets are now reducing the odds of a rate cut before summer—a big change from expectations in late 2025. Traders may consider selling call options on bond futures or using payer swaps to position for rates staying firm.
The Canadian dollar may also find support from these steady inflation readings. As rate cuts get pushed further out, the yield gap versus other currencies, such as the US dollar, may stay narrow. This can support low-cost call option structures on the CAD/USD pair, aiming for strength in the coming weeks.
Equity Volatility Hedging Approaches
For equity derivatives, higher-for-longer rates can weigh on the broader S&P/TSX 60 index, especially rate-sensitive sectors like real estate. We expect more market swings as traders adjust to the idea that rates may stay elevated longer than they expected last year. This favors using options to hedge long exposure or strategies designed to benefit from rising volatility.
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