Canada’s CPI Hits 2.3% in January: The "Base-Effect" Battle vs. Cooling Shelter Costs
Canada’s inflation story for early 2026 is becoming a tale of two pressures. According to Statistics Canada data released on February 17, 2026, the Consumer Price Index (CPI) rose 2.3% on a year-over-year basis in January, a slight deceleration from December’s 2.4%.
While the headline number is drifting closer to the Bank of Canada’s 2.0% target, the "under the hood" data reveals that inflation would be significantly lower if not for a massive statistical distortion caused by a temporary tax holiday exactly one year ago.
1. The "Ghost of GST Past": Tax Distortions in Focus
The most significant upward pressure on January’s data didn't come from new price hikes, but from a "base-year effect" linked to the GST/HST tax holiday of late 2024 and early 2025.
The Comparison Gap: In January 2025, the federal government temporarily removed the GST/HST on a wide range of goods (restaurant meals, toys, clothing). Because prices were "artificially" low a year ago, today’s normal-tax prices appear much higher by comparison.
Restaurant & Alcohol Surges: Prices for restaurant meals jumped 12.3% year-over-year, and alcoholic beverages rose by roughly 8-9%. These figures are largely inflated by the return of the 5-15% tax that wasn't there in January 2025.
The "Pure" Rate: Economists at RBC and Scotiabank estimate that without these tax-related distortions, Canada’s year-over-year inflation would likely be sitting at 2.1%.
2. Shelter Inflation Finally Breaks Sub-2%
In a milestone for Canadian households, shelter cost growth—once the primary driver of the inflation crisis—has fallen below 2.0% for the first time in nearly five years.
1.7% Growth: Shelter costs decelerated to 1.7% in January, driven by a cooling rental market and a steady decline in mortgage interest costs (MIC).
The MIC Pivot: The mortgage interest cost index rose just 1.2% year-over-year, continuing a long-dated deceleration as the "renewal shock" of the high-rate 2023-2024 era finally fades from the data.
Regional Cooling: Rent prices decelerated most sharply in Prince Edward Island (+0.2%) and Saskatchewan (+1.8%), signaling that the supply-demand imbalance in the housing market is beginning to stabilize nationally.
3. Gas and Groceries: Mixed Signals at the Checkout
Gasoline Plunge: Prices at the pump fell 16.7% year-over-year. This 17% drop acted as the single largest "brake" on the headline inflation rate, preventing the GST tax distortions from pushing the CPI back toward 3%.
Grocery Moderation: Food purchased from stores rose 4.8%, down from 5.0% in December. A surprise harvest surplus led to a 3.1% decline in fresh fruit prices—specifically berries, oranges, and melons.
Cellular Savings: Prices for cellular services saw a massive "base-effect" drop, decelerating to +4.9% from a staggering 14.6% in December.
The GME Academy Analysis: "BoC Flexibility Increases"
At Global Markets Eruditio, we are analyzing what this means for the Bank of Canada’s March 18 meeting.
Trader's Takeaway for February 2026:
CAD/USD Impact: The Canadian Dollar (Loonie) slid slightly to 1.36 following the report. The "softer than expected" 2.3% print suggests the BoC doesn't need to be as aggressive as the U.S. Fed, which is still battling sticky 3% services inflation.
Yields Falling: Government of Canada 2-year bond yields edged lower to 2.45%. Markets are beginning to price in a "Goldilocks" scenario where the BoC can focus on supporting growth rather than just fighting prices.
The "Core" Victory: The BoC’s preferred core measures (CPI-trim at 2.4% and CPI-median at 2.5%) are now at their lowest levels in nearly five years. This gives Governor Macklem the "green light" to remain patient and potentially cut rates later this summer.
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