Canada's inflation rate shot up half a point to 1.9 per cent last month, the largest increase in more than a year, Statistics Canada said Thursday.

All inflation indicators rose in January and all provinces experienced inflation, though Atlantic Canada had the biggest gains.

A woman prepares to fill up her tank at a gas station in St. John's. (CBC)

The Bank of Canada core index, which the central bank pays closer attention to in setting interest rates, rose to two per cent. Indeed, the measure of core inflation has reached the central bank's two per cent target almost a year and a half in advance of what the bank had estimated, TD economist Diana Petramala said Thursday.

But the core rate will likely drop back down to the 1.6 to 1.8 per cent range as the slack in the economy continues to exert downward pressure on prices, she said, so drastic policy change seems unlikely.

On a monthly basis, prices gained 0.3 per cent from December to January after falling the same amount the previous month.

The annual inflation rate has gone from minus 0.9 per cent to a positive 1.9 per cent in four months.

But economists, who had expected a January rise in the inflation rate, say Bank of Canada governor Mark Carney is unlikely to read the sharp increase as an underlying trend that would cause him to raise interest rates before July.

That's because Canada's inflation story remains all about gasoline prices and is regarded as temporary — the aftermath of wild swings in world crude oil more than a year ago, when crude rose above $147 US a barrel in mid-2008 then fell precipitously in the following months.

'Look for inflation to slow over the next two months.'—BMO economist Benjamin Reitzes

"There were no big stories outside of the jump in energy prices," BMO economist Benjamin Reitzes said. "[Though] core prices popped in January, look for inflation to slow over the next two months."

The central bank has an official inflation-targeting policy, whereby if the inflation rate deviates from two per cent, the Bank of Canada implements policy aimed at returning it to that level with 18 to 24 months.

Canada's inflation rate has remained relatively low ever since the central bank adopted this policy in February 1991.

Energy prices a factor in rise

At this time last year, oil prices were seeking a bottom as the global recession slashed demand. Statistics Canada said the cost of filling your gasoline tank at the pump was 23.9 per cent higher this January than a year ago. That comes on the heels of a 25.6 per cent rise in the 12 months to December 2009.

Excluding the important energy component, the inflation rate looked a little more tame at 1.3 per cent.

"Prices at the pump have been relatively stable since July 2009," so prices will flatten out, the data agency said.

Besides gasoline, the other main contributors to inflation last month came from car insurance, property taxes and restaurant meals.

Meanwhile, the cost of mortgage interest, natural gas, women's clothing and fresh vegetables fell.

But the key food component, which had been rising most of last year, has already come back to earth and advanced a meagre 1.4 per cent in January, the smallest in almost two years.

In the current low-interest environment, the amount Canadians pay on interest on their home mortgages remains a major source of disinflation, falling 5.5 per cent in January.

Shelter costs declined 1.1 per cent during the 12-month period, mostly the result of declines in mortgage interest cost and natural gas prices.

Property taxes, however, rose 4.3 per cent and rent 1.4 per cent.

Biggest rise in Atlantic Canada

Regionally, Statistics Canada said all provinces saw consumer prices increase last month, with Atlantic Canada experiencing the biggest gains ranging from 3.1 per cent in Nova Scotia to four per cent in Prince Edward Island.

As with the national trend, gasoline prices were mostly responsible for the year-over-year increases in Atlantic Canada's inflation rate — with prices rising from 26.5 per cent in Newfoundland and Labrador to 35.6 per cent in New Brunswick.

At 0.7 per cent, British Columbia had the lowest annual inflation rate.