Canada’s annual inflation rate decreased to 2.3 percent in January, as reported by Statistics Canada. The drop was influenced by a reduction in gasoline prices. Economists had anticipated the rate to hold steady at 2.4 percent from December. Gas prices saw a significant decrease of 16.7 percent in January compared to the previous year, influencing the headline rate. Excluding gas, the inflation rate for January stood at three percent.
The Bank of Canada’s core inflation indicators, which eliminate fluctuations from one-time tax adjustments and gas costs, all saw a decline in January, moving closer to the central bank’s two percent inflation target. Chief economist Douglas Porter from Bank of Montreal mentioned that this development is positive for the Bank of Canada, as inflation is nearing the two percent target more broadly. Porter highlighted that while the central bank has set a high threshold for further interest rate cuts and monetary policy cannot address supply-related disruptions, continued deceleration in inflation could position the bank to support the economy if growth faces challenges due to structural changes.
In the food sector, grocery inflation eased to 4.8 percent in January from the previous year, following a rise to five percent in December. The reduction in price growth was primarily driven by lower prices for fresh fruits, especially berries, oranges, and melons, with stable harvests in producing regions. The impact of last year’s GST break, which was in effect from December 14, 2024, to February 15, 2025, continues to affect inflation data. Prices for restaurant meals during January 2026 were higher year-over-year due to the GST break in place during that period, as were costs for alcohol purchased from liquor stores, toys, games, hobby supplies, and children’s clothing.
Regarding shelter costs, housing price growth has been on a downward trend since early 2024, with January 2026 seeing a growth rate of 1.7 percent, marking the first time in five years that the rate fell below two percent. Rent prices decelerated notably in Prince Edward Island and Saskatchewan, while the index measuring changes in homeowners’ mortgage interest payments also slowed in January. Additionally, cell service prices saw a decrease in growth in January, dropping to 4.9 percent annually compared to December’s 14.6 percent rate.