Canada’s yearly inflation rate decreased to 2.3 percent in January, as reported by Statistics Canada on Tuesday, primarily influenced by a drop in gasoline prices. Economists had predicted that the rate would hold steady at 2.4 percent from December.
The decline in pump prices significantly impacted the overall rate, with a 16.7 percent decrease in January compared to the same period last year. Excluding gas prices, the inflation rate for January stood at three percent.
During January, the Bank of Canada’s preferred indicators of core inflation, which eliminate fluctuations from one-time tax adjustments and gas costs, all saw a slight decrease, moving closer to the central bank’s target of two percent inflation.
Douglas Porter, the chief economist at Bank of Montreal, noted in a client communication that this development is positive for the Bank of Canada as inflation is nearing the two percent target more broadly. Nevertheless, Porter highlighted that the central bank has emphasized the need for significant reasons to lower the key interest rate and that monetary policies cannot address supply-related shocks.
Porter suggested that if inflation continues to decelerate, the bank may be in a position to provide support to the economy if growth faces challenges from structural shifts.
In a separate development, grocery inflation in January decreased to 4.8 percent from the previous year after reaching five percent in December. The drop in price growth was mainly driven by reduced prices for fresh fruits, particularly berries, oranges, and melons, with stable and robust harvests in producing regions.
Statistics Canada pointed out that the impact of last year’s GST break, which lasted from December 14, 2024, to February 15, 2025, is still affecting inflation data.
Furthermore, housing price growth has been on a slowdown trend since early 2024, according to Statistics Canada. In January 2026, the growth rate dipped to 1.7 percent, marking the first time in five years that it 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.
Cell service prices also saw a slowdown in January, with a yearly rate of 4.9 percent compared to December’s 14.6 percent.