Statistics Canada said Friday the gain compared with a CPI uptick of 1.2 per cent in December, while the Bank of Canada's core index, which excludes some of the most volatile items, was up 1.4 per cent for January after posting a gain of 1.3 per cent in December.
Economists had expected a gain of 1.3 per cent for both the consumer price index and the central bank's core index, according to Thomson Reuters.
Eric Lascelles, chief economist at RBC Global Asset Management, said the stronger inflation rate helps put to rest the slim chance of the Bank of Canada lowering interest rates to stimulate growth.
"The bank's been sitting at a neutral position for a while, but expressing concern about low inflation. You have to think that concern starts to abate now," Lascelles said.
The Bank of Canada's recent forecast that inflation will remain below its target of two per cent for about two years has raised concern of an economy too weak to push up prices.
"The low inflation concerns are perhaps starting to abate here. They're not completely gone, but they're starting to abate and our working assumption is that inflation probably has some further room to run to the upside," Lascelles said.
The increase in inflation came as Statistics Canada also reported retail sales in December fell more than expected.
Retail sales fell 1.8 per cent from November to $40.2 billion as winter storms kept shoppers at home and out of the malls and off the car lots.
Nine of the 11 subsectors reported lower results with the biggest drop in dollar terms was the motor vehicle and parts subgroup which dropped 3.2 per cent as sales at new car dealers fell 3.6 per cent for the month. Excluding auto sales, retail sales were down 1.4 per cent.
"The decline in sales is consistent with the narrative and early indications of December as very weak month for economic activity," TD economist Connor McDonald.
"We expect industry level GDP to contract modestly as a result of the lost output from the ice storm and generally inclement weather."
TD noted that retail sales are likely to recover with the spring thaw and while debt loads remain a limiting factor, consumer spending is expected to remain a key driver for the economy.
Seven of the eight major components of the consumer price index were up from a year ago. In addition to higher shelter costs which increased 2.1 per cent compared with a year ago, a 2.0 per cent increase in transportation costs and a 1.1 per cent increase in food prices contributed the most to the rise.
Excluding food and energy prices, the consumer price index was up 1.2 per cent compared with a year ago.
Contributing to the higher shelter costs for January were an increase in electricity prices, which were up 4.7 per cent compared with a year ago, while rents climbed 1.6 per cent and home and mortgage insurance costs rose 5.4 per cent. Mortgage interest costs fell 0.6 per cent on a year-over-year basis, the smallest decline since May 2012.
Contributing to the higher transportation costs was a 4.6 per cent rise in gasoline prices. Food prices climbed 1.1 per cent with prices for food from stores up 1.0 per cent and food in restaurants up 1.3 per cent.
The health and personal care index the only major component to post a decline as it dropped 0.2 per cent compared with a year ago.
BMO senior economist Benjamin Reitzes said the February inflation report will be closely watched because prices rose strongly in February 2013.
"However, January's bigger-than-expected increase suggests that headline and core inflation won't fall as low as previously expected," Reitzes said.
"That will definitely be a relief for policy-makers, though the weak end to 2013 for broader economic activity is a new concern."
By province, the pace of inflation picked up in six provinces compared with December led by an increase of 2.7 per cent in Alberta compared with a 2.1 per cent gain in December. Inflation slowed in New Brunswick to 1.6 per cent compared with 1.9 per cent in December.
B.C. saw no year-over-change in the consumer price index for the second consecutive month.
On a month-over-month basis, the consumer price index increased 0.3 in January from December before seasonal adjustments, but increased 0.2 per cent from December with seasonal adjustments.Suggest a correction