Softer CPI gave the Bank of Canada more room – but not a green light to cut
Canada’s headline inflation rate edged down to 2.3% in January, a marginal surprise that reinforced expectations the Bank of Canada would keep its policy rate at 2.25% and stay cautious about further easing.
Statistics Canada said the annual pace of consumer price growth slipped from 2.4% in December as gasoline prices fell sharply and earlier base effects worked through the data.
Gas prices were down 16.7% from a year earlier, pulling the headline rate lower even as a temporary GST/HST holiday last year continued to push up prices for items such as restaurant meals, alcohol, toys and children’s clothing.
The Bank of Canada’s preferred core inflation measures also moved closer to target. The central bank’s trim and median gauges eased to 2.4% and 2.5% respectively, averaging a 1.2% annualized pace over the past three months once volatile items and indirect taxes were stripped out.
“Excluding the impact of indirect taxes, year-over-year price growth slowed to 2.1%,” Nathan Janzen, assistant chief economist at RBC, wrote in a note.
“Lower inflation reading leave the BoC with more flexibility to respond to weakening economic conditions with lower interest rates if necessary, although we do not expect as a base-case that additional reductions will be needed,” he said.
Uncertainty keeps Canada’s mortgage market in wait‑and‑see mode.
— Canadian Mortgage Professional Magazine (@CMPmagazine) February 12, 2026
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Shelter and mortgage costs ease for borrowers
Shelter inflation slowed to 1.7% year over year, the first time in nearly five years it dipped below 2%, as rent growth cooled in several provinces and the index tracking mortgage interest costs moderated alongside earlier rate cuts.
“Much of the slowing in core measures appears to have come from easing shelter price growth,” Janzen said.
Grocery prices rose 4.8% compared with 5% in December, while restaurant prices climbed more than 12% from a year earlier – gains inflated by last year’s sales tax holiday.
What it means for rate‑cut odds and mortgages
BoC governor Tiff Macklem recently warned that cutting too aggressively while the economy grappled with structural shocks from United States tariffs and weak productivity risked stoking future inflation, even as he acknowledged that underlying pressures eased toward 2.5%.
Markets and many bank economists now expect a prolonged pause, with some – including Janzen and his colleagues at RBC – indicating they do not expect further cuts in their base case.
Meanwhile, BoC’s January 28 summary of deliberations puts mortgage professionals on notice that the next rate move – up or down – remains “unusually difficult” to call, even as the policy rate stayed at 2.25%.
The summary said it is “unusually difficult to effectively assign weights and probabilities to the various risks surrounding the outlook,” pointing to geopolitical shocks, the Canada-United States-Mexico Agreement (CUSMA) review and Canada’s adjustment to US tariffs.
They noted that “geopolitical tensions and US trade policy remains unpredictable, and uncertainty about how the Canadian economy would adjust remains elevated,” concluding they need to “maintain optionality in setting monetary policy.”
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