January's rate, which matched analysts' forecasts, compares to 2.4 percent in December. The release from Statistics Canada prompted traders to trim bets on the likelihood of a near-term rate hike by the Bank of Canada, which targets 2 percent inflation.

The year-on-year core rate, which is closely watched by the central bank, slipped to 1.4 percent from 1.5 percent in December.

One of the reasons inflation is relatively subdued compared to elsewhere is the strong Canadian dollar, which hit a near three-year high on Thursday, February 17, against the U.S. dollar.

"Those calling for a spring hike just got dealt a blow with inflation that is going absolutely nowhere ... this suggests to me that the Bank of Canada's concerns about the Canadian dollar and its disinflationary influences are still fully operational in the Canadian economy," said Scotia Capital's Derek Holt.

Although the powerful currency helps keep prices under control, the Bank of Canada frets it could also hurt the crucial export sector.

The Canadian dollar firmed as high as C$0.9825 to the U.S. dollar, or $1.0178, just after the report. By 0830 a.m. (1330 GMT) it had slipped back to C$0.9834 to the U.S. dollar, or $1.0169.

Overnight index swaps, which trade based on expectations for the key central bank rate, showed investors see a 99.59 percent probability rates will stay on hold at the Bank of Canada's next rate announcement on March 1. The market has not fully priced in the odds of a rate hike until July.

"From the (Bank of Canada) standpoint, nothing was priced in anyways for the March meeting. Growth is likely in the near term to be more important to them than current inflation numbers," said Mark Chandler, head of fixed income and currency strategy at RBC Capital Markets.

Overall, prices were up by 0.3 percent from December.

Energy prices rose 9.0 percent in the 12 months to January following a 10.5 percent year-on-year rise in December. Gasoline prices advanced by 13.0 percent on the year, the same rate seen in December.

The Canadian data followed a U.S. report which showed core consumer prices there rose at the quickest pace in 15 months in January, suggesting a long spell of slowing inflation was coming to an end.

Canada's modest inflation picture also compares favorably to higher growth emerging economies, where surging commodity costs have put central banks on inflation alert.

China's central bank on Friday, February 11, raised lenders' required reserves by 50 basis points, the second such increase this year as it tries to curb stubborn inflation.

South Africa, India and Russia are also concerned about rising prices, while food inflation has also been cited as a factor in the political unrest in the Middle East.

A report showed inflation in Britain jumped to twice the Bank of England's target in January, prompting BoE Governor Mervyn King to acknowledge that interest rates might rise more rapidly than economists had expected.

Courtesy of Reuters