Canada’s annual inflation rate slowed to 2.3 percent in January, according to data released Tuesday by Statistics Canada, surprising economists who had predicted a steady rate of 2.4 percent. The deceleration offers increased flexibility to the Bank of Canada (BoC) as it weighs potential interest rate cuts amid ongoing economic uncertainty.
The slowdown was largely driven by a significant drop in gasoline prices, which were 16.7 percent lower in January 2026 than the previous year. However, excluding gasoline, the Consumer Price Index (CPI) still rose 3.0 percent, consistent with the rate observed in December 2025.
Economists at Desjardins Group described the latest data as evidence that “inflationary pressures are benign in Canada,” suggesting the BoC may have been overly concerned about potential inflationary risks. Desjardins economist Royce Mendes stated that the central bank should now “be squarely focused on supporting the economy,” and that rate cuts should be considered if upcoming economic indicators weaken.
BMO Economics chief economist Douglas Porter characterized the January data as “encouraging,” noting that key inflation measures are trending toward the BoC’s 2 percent target. However, Porter cautioned that the Bank has “made it abundantly clear that the bar to cut rates again is quite high,” and that its options for addressing potential trade conflicts remain limited. He added that if inflation continues to decelerate, the BoC could be positioned to support the economy should growth falter during a period of structural economic shift.
Grocery price increases also moderated, slowing to 4.8 percent in January from 5.0 percent in December. Fresh fruit prices experienced a 3.1 percent decrease compared to January 2025, attributed to “generally strong or stable harvests.” Shelter costs also rose at a slower pace, with annual shelter inflation at 1.7 percent, and a notable decline in rent prices representing the “most significant decline since 2020,” according to Mendes.
Core inflation measures closely monitored by the BoC also continued to decline. CPI-median and CPI-trim, which exclude extreme price fluctuations, fell to 2.5 percent and 2.4 percent respectively. CPI excluding food and energy decreased from 2.5 to 2.4 percent.
Statistics Canada noted that the absence of a goods and services tax (GST)/harmonized sales tax (HST) holiday this year will likely contribute to “noisy” data in the coming months. The agency highlighted that restaurant meal prices continued to rise, increasing 12.3 percent year-over-year in January, and to a lesser extent, prices for alcoholic beverages, toys, and children’s clothing.
On a monthly basis, the CPI remained flat in January. After seasonal adjustments, the CPI rose 0.1 percent.
