The gasoline price index was the largest contributor to the deceleration in headline inflation, with a larger decline in January than in December. Excluding gasoline, the CPI rose 3.0% in January, matching the December increase.

Indexes with year-over-year movements impacted by the temporary GST/HST break in January 2025 continued to put upward pressure on the year-over-year all-items increase in January 2026. Among the affected indexes, the CPI remained most affected by the acceleration in prices for restaurant meals, and to a lesser extent, by prices for alcoholic beverages, toys, and children’s clothing.

Prices at the pump fell 16.7% year over year in January, after a 13.8% drop in December. The larger year-over-year decline was mainly due to a base-year effect. The index rose 0.5% month over month in January 2026, compared with a 4.0% increase in January 2025, when crude oil prices rose. Additionally, the partial reintroduction of the provincial gas tax in Manitoba in January 2025 is no longer impacting the 12-month movement.

For food purchased from restaurants, prices were higher in January 2026 (+12.3%) than in January 2025, when prices were lower due to the GST/HST break.

Similarly, prices rose on a year-over-year basis for other previously tax-exempt goods in January 2026, including alcoholic beverages purchased from stores (+7.9%), alcoholic beverages served in licensed establishments (+9.0%), toys, games (excluding video games) and hobby supplies (+8.7%) and children’s clothing (+6.3%).

Year over year, prices for cellular services decelerated in January (+4.9%) compared with December (+14.6%), reflecting a base-year effect after six consecutive months of upward pressure. On a month-over-month basis, prices declined in January 2026 (-0.8%) after increasing in January 2025 (+8.3%).

Prices for food purchased from stores rose 4.8% year over year in January, following a 5.0% increase in December. The slower price growth was mainly driven by a decline in fresh fruit prices (-3.1%) in January, after a 4.5% increase in December. Amid generally strong or stable harvests in producer regions, the largest contributors to downward pressure on prices were berries, oranges and melons.

Since early 2024, growth in shelter costs has slowed year over year. In January 2026, prices continued to decelerate, rising 1.7%. This is the first time in nearly five years that year-over-year shelter price growth has fallen below 2.0%. Slower growth in rents and mortgage interest costs drove the deceleration.

Rent prices rose at a slower pace year over year in January (+4.3%) than in December (+4.9%). Rent prices decelerated the most in Prince Edward Island (+0.2%) and Saskatchewan (+1.8%).

The mortgage interest cost index rose 1.2% year over year in January, following a 1.7% increase in December. This index has been decelerating since September 2023.

In January, prices rose at a slower pace in nine provinces than in December. Year-over-year price growth accelerated in British Columbia due to a base-year effect, as hotel prices declined on a monthly basis in January 2025 after increasing in December 2024, coinciding with a series of high-profile concerts in Vancouver.

Although inflation pressures are dissipating, this report alone will not trigger a Bank of Canada rate cut when the Bank meets again on March 18. It is unlikely to move the Bank of Canada from the sidelines as it continues to evaluate how US tariffs are affecting the economy. The data suggest that Americans are paying the bulk of the tariffs.

The Bank of Canada’s preferred measures of core inflation decelerated, with the median gauge edging down to 2.5% from 2.6%, and trim falling to 2.4% from 2.7%.

What the Canadian economy needs is greater clarity on the future of the Canada-Mexico-United States (CUSMA) trade agreement. Reduced uncertainty is the key ingredient required for a rebound in housing activity, particularly in the regions of Ontario and Quebec hardest hit by the tariffs.

The central bank kept its policy rate at 2.25% last month for the second consecutive meeting and has signalled an aversion to juicing demand at this time. In a speech earlier this month, Governor Tiff Macklem warned that cutting interest rates amid a supply-side shock could stoke inflation.