Yesterday, Statistics Canada reported that Canada’s annual inflation rate slowed in January. Inflation remains above the Bank of Canada’s (BoC) 2% target, but this was expected by the BoC in response to lower base-year prices at the beginning of 2025. The BoC aggressively lowered interest rates, which helped bring inflation down considerably over the last few years. Still, there are ongoing upside risks to inflation amid trade tensions with the US and other geopolitical tensions.

• Canada’s annual inflation rate was 2.3% in January, which was down from the 2.4% rate posted in December. A Bloomberg survey of economists was estimating another 2.4% rate in January. January’s rate falls in line with the BoC’s expectations for early this year.
• Transportation prices fell at a faster pace in January over December, headlined by a 16.7% drop in gasoline prices. The growth in shelter prices softened over the month.
• Conversely, the price growth for food accelerated in January, largely in response to the HST holiday in January 2025. This was particularly notable in the increase in prices at restaurants.
• The two measures of annual core inflation – median and trim – slowed to 2.5% and 2.4%, respectively. Core measures, which exclude more volatile items, continued their downward trajectory, which began in mid-2025 after rising over the first half of the year.

Of course, any inflation report turns to how it might impact the BoC’s next interest rate decision, which will be made on March 18. Given that inflation is moving along with the BoC’s expectations, the BoC may be inclined to continue to hold its policy interest rate steady at 2.25%. The BoC did previously note the rate was at an appropriate level to help support Canada’s economy and keep inflation in check. However, the BoC did note that policy, economic and geopolitical uncertainty have made it difficult to project the path of Canadian economic conditions.

If you would like to discuss this economic and market update or have questions about your finances and investments, please feel free to contact me anytime