Canada’s annualized inflation rate edged down to 2.3% in January from 2.4% at the end of 2025, bolstering the case for interest rate cuts by the Bank of Canada.
The consensus expectation of economists was for inflation to remain at 2.4% in January.
The better-than-expected reading was due largely to a 16.7% year-over-year decline in gasoline prices across Canada. That was prompted by an end to consumer carbon pricing.
Shelter inflation fell to its lowest level in nearly five years as rent pressures eased in January.
However, food prices rose 7.3% year-over-year in January, up from a 6.2% advance in December 2025.
Still, the softening inflation data could lead the Bank of Canada to consider lowering interest rates in the second half of this year, say economists.
Financial markets are currently placing the odds of an interest rate cut from the Bank of Canada at its next policy meeting on March 18 at only 10%.
However, some economists now say that an interest rate cut in the latter half of 2026 is no longer off the table.
The Bank of Canada lowered its trendsetting overnight interest rate 100 basis points, or one full percentage point, to 2.25% during 2025.
Since the last rate cut in October, central bank officials in Canada have warned that future interest rate reductions are less likely and will be data dependent.
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