(Reuters) - Canada's annual inflation rate eased more than expected to 5.9% in January due to a so-called base-year effect, even as food and mortgage interest costs continued to soar, Statistics Canada data showed on Tuesday.

Analysts polled by Reuters had expected annual inflation to edge down to 6.1% from 6.3% in December. Month over month, the consumer price index was up 0.5%, again lower than analysts' forecast of a 0.7% gain after a 0.6% decline in December.

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Market reaction: CAD/

Link:https://www150.statcan.gc.ca/n1/daily-quotidien/230221/dq230221a-eng.htm?HPA=1

COMMENTARY

ROYCE MENDES, DIRECTOR & HEAD OF MACRO STRATEGY AT DESJARDINS

"The three-month annualized rates of the Bank of Canada's core median and trim measures now both stand at 3.5%. That's at the low end of the recent range for those supercore measures of inflation. The softer-than-anticipated data will reinforce the Bank of Canada's conditional commitment to keep rates on hold."

ANDREW GRANTHAM, SENIOR ECONOMIST, CIBC CAPITAL MARKETS

"Today's data added to evidence that inflation is coming under control, even as growth in the economy continues to hold up better than expected in the face of higher interest rates, creating a confusing picture for the Bank of Canada."

DOUG PORTER, CHIEF ECONOMIST, BMO CAPITAL MARKETS

"Lots of moving parts here but definitely on balances this is better than expected. It does seem to be due to a few special factors ... In fairness some of the surprise on the way up was due to some special factors so it is definitely encouraging news."

"It gives them (the Bank of Canada) somewhat greater comfort in their decision to go on pause at least temporarily. We've had a string of relatively strong numbers, especially strong numbers from the U.S., since they made that conditional pause. I think a low side inflation read will definitely prove to be a nice antidote to some of those high side surprises."

ANDREW KELVIN, CHIEF CANADA STRATEGIST AT TD SECURITIES

"There were some very strong base effects from last January that are starting to roll out of the headline inflation metrics.

The inflation figure "allows (the Bank of Canada) to stay on hold in March, despite the fact that the labor market was extraordinarily hot in the month of January."

"I'm not that surprised on the slight deceleration in the headline, year-over-year pace of inflation. I think this is consistent with expectations, I would say probably, when (the central bank) signaled that they were likely to pause at the January meeting. Now, clearly, the job numbers were not consistent the bank's expectations. So I don't think this is going to convince the market that the bank is done, because 5.9% is a very high rate of inflation. But it suggests that the bank can probably continue to play for time. It's a well-behaved enough inflation number that the Bank of Canada can point to some progress in bringing price pressures lower, and can stay on hold, at least in March.

(Reporting by Steve Scherer, Fergal Smith; Editing by Denny Thomas)