Based on coverage from CHEK News and Investment Executive.
Canada’s inflation rate eased a bit in January, giving households a small break after years of sticker shock. Statistics Canada says the annual inflation rate ticked down to 2.3 per cent, slightly better than what economists were expecting (2.4 per cent).
The big themes: cheaper gas helped, shelter costs finally cooled further, but food inflation picked up, with restaurant prices doing a lot of the damage.
Canada inflation rate slips to 2.3%
Statistics Canada reported Tuesday that inflation slowed to 2.3 per cent in January. That is a modest move, but it matters because it keeps inflation closer to the Bank of Canada’s 2 per cent target and reinforces the idea that the worst price pressures have been fading.
Economists had expected the inflation rate to hold steady at 2.4 per cent, so the print came in a touch softer than forecast.
Gas prices fall after carbon price ends
One of the clearest drivers of the January cooldown was at the pump. StatCan says gas prices were 16.7 per cent lower than a year earlier, “largely thanks to the end of the consumer carbon price in April.”
That drop helped offset other categories that are still rising faster, particularly food. For many Canadians, gas is one of those costs you feel immediately and weekly, so a year-over-year decline this large can make the overall inflation picture look (and feel) noticeably better, even when other essentials stay stubborn.
Food inflation jumps as restaurant costs surge
Food inflation accelerated to 7.3 per cent annually in January, according to StatCan, with restaurant meals up 12.3 per cent year-over-year.
StatCan tied much of that restaurant-price jump to how the federal government’s “tax holiday” affected the year-over-year comparison. January 2025 was the only full month of Ottawa’s temporary tax reprieve that removed a portion of the sales tax on dining out and various goods. Because that earlier month was artificially cheaper, this January’s annual comparison is “somewhat distorted.”
That same effect showed up in other categories too. StatCan says prices for alcohol, children’s clothes, toys and games also rose year-over-year due to the “tax holiday” comparison.
On the grocery side, the pace was less intense. Food bought from stores rose 4.8 per cent annually in January, slowing from a five per cent increase in December. Fresh fruit prices fell 3.1 per cent in the month, which StatCan linked to stable growing seasons in producer regions that eased prices for items like berries, oranges and melons.
Shelter inflation cools below 2% for first time
Shelter has been the heavyweight in Canada’s inflation story, so this part stood out: StatCan says shelter prices rose 1.7 per cent annually in January, the first time in almost five years that shelter inflation has been below two per cent.
The agency pointed to slower price growth for rent and mortgage interest costs as key reasons for the improvement. TD senior economist Leslie Preston said the report lines up with TD’s view that price pressures will keep moderating through the year, “as past inflation problem areas, like rents, continue to cool.” Preston also said the Bank of Canada’s measures of underlying inflation cooled in January, with core metrics running below the 2 per cent target on a three-month basis.
Bank of Canada rate outlook ahead of March 18
This inflation report is also the Bank of Canada’s first read on price trends since it held its benchmark interest rate at 2.25 per cent last month.
BMO chief economist Doug Porter said progress on the Bank’s preferred core inflation measures will be encouraging, but he also argued the bar for another rate cut is high. Porter said central bank officials have warned there is limited room for monetary policy to do more to support the economy through what he described as a trade-driven structural transition. Still, he added that if inflation keeps decelerating, a future cut is not off the table if growth weakens.
The Bank of Canada will get February’s inflation data next, before its next rate decision on March 18.
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