The year-over-year (y/y) inflation rate in Canada was 2.3% in January, down slightly from December’s reading of 2.4%.

Lower y/y gasoline prices (-16.7%), due in part to the removal of the consumer carbon tax in April 2025, kept the overall inflation rate in check.

Excluding gasoline, national inflation was running at 3.0% in January. Some of this was due to the statistical noise created by the temporary GST/HST exemption on, among other things, restaurant meals, alcohol, and children’s clothing and toys that was in effect in January 2025 but not in January 2026.

The y/y rates of price growth of food purchased from stores and rented accommodation, while down from earlier highs, were still more than double the 2% target at 4.8% and 4.3%, respectively.

Interest rate implications: Putting all this together, there is nothing in the January numbers that is likely to spook the Bank of Canada one way or the other. Although still above target, two key measures of underlying, or core, inflation (CPI-trim and CPI-median) both fell in January.

From that perspective, it’s an encouraging inflation report. As the Bank of Canada reminded us last week, its stance on interest rate remains dependent on the incoming data. As such, our call remains that the Bank will keep its trendsetting policy interest rate at its current 2.25% for the remainder of the year.

In Alberta, y/y inflation came in at 2%. The somewhat lower rate in Alberta was due in part to a smaller impact from the GST/HST exemption.

Because Alberta does not have a provincial sales tax, it was not removed in January 2025. As a result, the price increase this January from the reinstatement of the provincial sales tax on restaurant meals and other items was not a factor in Alberta.

The price of food purchased from restaurants in Alberta was 6.9% higher y/y in January with the GST back in place, but this was much lower than the 12.3% rise nationally with both GST and the provincial tax once again in effect.

A larger decrease in the price of natural gas and gasoline also contributed to the lower overall inflation rate in Alberta. A larger price bump in categories such as electricity, rent and clothing worked in the opposite direction.