Canada’s service economy contracted in January, with reductions in activity and new business, according to the S&P Global Canada Services PMI. Companies reported high interest rates and general caution among clients weighed on the sector.

The S&P Global Canada Services Business Activity Index posted a reading of 45.8 in January. That’s up from the 44.6 reading in December 2023, but readings below 50 indicate contraction.

“January’s survey data highlight an economy continuing to splutter at the start of the new year,” Paul Smith, economics director at S&P Global Market Intelligence, said in a press release. “Weak market demand, weighed down by high interest rates and a reticence amongst clients to commit to new work, was again widely reported by panelists and resulted in another noticeable contraction in business activity.”

However, price indices still rose over the month, with firms citing rising salary costs as a key driver.

“Upward price pressures are a timely reminder that the disinflationary road ahead is unlikely to be smooth and points towards the Bank of Canada maintaining its restrictive monetary policy stance in the near term,” Smith said. “However, with confidence in the outlook dwindling, and with a subdued growth backdrop characterized by downward pressure on pricing power, it feels more likely than not that price pressures will resume their downward trend in the coming months and thus provide room for a more accommodative monetary policy later in 2024.”