The result came as a modest surprise to economists, many of whom had expected inflation to hold steady. The primary driver behind the slowdown was a sharp drop in gasoline prices. Pump prices were down 16.7 per cent compared with January last year, placing notable downward pressure on the headline figure.
The Bank of Canada closely monitors core inflation measures, which strip out volatile components such as fuel and temporary tax changes. In January, these preferred measures ticked lower, moving closer to the central bank’s two per cent target.
The easing in core metrics is seen as encouraging, suggesting that inflation is gradually stabilising across a broader range of goods and services. However, analysts caution that the central bank has signalled a high threshold for further interest rate cuts. Policymakers have also emphasised that monetary policy has limited ability to address supply-driven shocks.
If inflation continues to trend downward and economic growth weakens, the Bank of Canada could have greater room to support the economy. For now, though, the path forward appears measured rather than urgent.
Grocery prices also showed signs of cooling. Food inflation slowed to 4.8 per cent year over year in January, down from five per cent in December. The moderation was largely attributed to lower prices for fresh fruit, including berries, oranges and melons, supported by strong and stable harvests in producing regions.
Statistics Canada noted that last year’s temporary GST holiday, which ran from mid-December 2024 to mid-February 2025, continues to affect annual comparisons. Items that were exempt during that period now appear more expensive on a year-over-year basis because the tax break was in place at the time.
Shelter cost growth continued its gradual slowdown. Year-over-year housing price growth fell to 1.7 per cent in January, the first time in five years it has dropped below two per cent. Rent increases moderated most notably in Prince Edward Island and Saskatchewan. Mortgage interest cost growth also eased, reflecting the lagged impact of previous rate changes.
Overall, January’s data suggests inflationary pressures are easing, though not uniformly. The coming months will be crucial in determining whether Canada is firmly on track toward sustained price stability.
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