Canada’s annual inflation rate eased to 2.3 per cent in January, down from 2.4 per cent in December, as lower gasoline prices helped drive a slowdown in headline inflation. The data arrives as the Bank of Canada weighs its next interest rate decision amid ongoing trade uncertainty.
BNN Bloomberg spoke with Randall Bartlett, deputy chief economist at Desjardins, about the drivers behind the latest CPI reading, including food prices, shelter costs and trade-related risks, and what they could mean for monetary policy.
Key Takeaways
- Canada’s Consumer Price Index rose 2.3 per cent year over year in January, down from 2.4 per cent in December and below expectations.
- Gasoline prices were the largest contributor to the deceleration, while CPI excluding gasoline rose three per cent, unchanged from December.
- Core inflation excluding food and energy slowed to 2.4 per cent from 2.6 per cent, suggesting broader price pressures are easing.
- Shelter costs, including mortgage interest and rents, continued to moderate, helping rebalance the inflation basket.
- Trade uncertainty, including the upcoming CUSMA review, remains a key risk factor for the economic and interest rate outlook.
Read the full transcript below:
ROGER: Statistics Canada has just released the latest Canadian CPI data for the month of January. Inflation rose 2.3 per cent on a year-over-year basis, following a 2.4 per cent increase in December. The gasoline price index was the largest contributor to the deceleration in headline inflation, with a larger decline in January compared with December. Excluding gasoline, CPI rose three per cent in January, matching the increase in December.
For reaction and in-depth analysis as he breaks down the numbers, Randall Bartlett is deputy chief economist at Desjardins. Randall, thanks very much for joining us.
RANDALL: Thanks so much for having me.
ROGER: First reaction: 2.3 per cent year over year, versus 2.4 per cent in December. In line?
RANDALL: I would say even better than in line. To be honest, there was an expectation that inflation was going to remain unchanged at 2.4 per cent in January, the same as December, and it came in a tick below consensus.
When you look under the hood, every metric that economists contribute to the consensus survey came in below expectations. So overall, at first blush, it seems like a pretty good print for inflation and supportive of the Bank of Canada remaining on hold for the foreseeable future.
ROGER: Of course, a big factor year over year was the temporary GST/HST break. How does that weigh in? Are you surprised at where we stand with that?
RANDALL: I am a little surprised in terms of the overall contribution. In January, the price of food purchased at restaurants was up 12.3 per cent year over year. This was anticipated. It dropped materially in January of last year, so there’s a mechanical pop this year.
Ultimately, that was offset by an even more material drop in gasoline prices on a year-over-year basis. That led to a headline print that was fairly sanguine.
Even when you remove food and energy, the traditional core measure came in at 2.4 per cent, down from 2.6 per cent in December. Overall, it’s a pretty good print, with prices heading in the right direction.
ROGER: Let’s bring Martin into the conversation.
MARTIN: Tiff Macklem has described his job as more difficult than usual because of uncertainty around trade negotiations. It’s only one month’s data, but do you see anything here that would change his view?
RANDALL: I don’t see anything that would change his view at this point. Removing the retaliatory tariffs and the consumer carbon price back at the beginning of April last year helped make the Bank of Canada’s job easier by keeping inflation relatively close to the bank’s two per cent target. That allows the bank to focus more on what’s happening in the real economy.
We saw those two cuts back in the fall, focused on supporting the Canadian economy through the transition of this structural trade shock. Ultimately, the Bank of Canada has more room to provide support if we do get a material negative shock, because inflation is relatively close to that two per cent target.
ROGER: It’s always good to see inflation going down, but are there any numbers that are cause for concern, perhaps for reasons we might not like?
RANDALL: Overall, things are headed in the right direction. Broad groups that had been contributing significantly to inflation in the past few years, such as shelter, which makes up a large part of the CPI basket, are continuing to move in the right direction.
Ownership costs are easing as mortgage interest costs decelerate, and rents are also decelerating. That major contributing factor to CPI continues to improve.
We are still seeing more food inflation than we’re comfortable with, even when you take out the impact of the GST/HST holiday. The Bank of Canada recently noted that much of this is being imported into Canada, whether as a function of U.S. tariffs affecting supply chains indirectly or broader trade-related disruptions.
Overall, we’re seeing more balance across the inflation basket.
MARTIN: Where do you stand on interest rates? It seems more nuanced this year. Maybe no rate cuts, maybe a rate increase toward the end of the year. Some argue the Bank of Canada is still behind the curve.
RANDALL: I don’t think that’s an unreasonable argument. Governor Macklem has been clear that the Bank of Canada cannot fully offset a structural shock like a trade shock from the United States. That’s the role of fiscal policymakers, through trade negotiations, support measures and efforts to diversify trade and invest in infrastructure.
If Canada is hit with a severe negative shock, potentially around the CUSMA review happening mid-year, the Bank of Canada likely has room, given where inflation stands, to provide transitional support to help the economy adjust to new economic conditions and a new relationship with the United States.
ROGER: We’ve absorbed the shock of initial tariffs. Would we be able to do the same if CUSMA were significantly revised or disappeared?
RANDALL: We’ll be releasing a note next week outlining scenarios around different CUSMA review outcomes. Canada has been spared much of the worst of U.S. tariffs, with exemptions for CUSMA-compliant goods.
The average effective tariff rate on Canadian exports to the U.S. is just shy of four per cent, compared with more than 10 per cent for some countries, and in some cases approaching 40 per cent. Canada has benefited from those exemptions.
If that changes, it’s unclear what trade regime would replace it and what bilateral tariffs could look like. The risks are broadly tilted to the downside, though Canada could still end up in a relatively better position than many other countries.
ROGER: Randall, we’ll leave it there. Thanks for joining us.
RANDALL: My pleasure. Thanks for having me.
ROGER: Randall Bartlett is deputy chief economist at Desjardins.
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This BNN Bloomberg summary and transcript of the Feb. 17, 2026 interview with Randall Bartlett are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
