- Canada’s annual inflation rate fell to 2.3% in January 2026, slightly lower than expected and aligned with the Bank of Canada’s forecasts.
- The trimmed-mean core rate, a key measure of underlying price pressures dropped to 2.4%, its lowest level since April 2021.
- While shelter and furniture costs cooled, food prices surged 7.3% and restaurant costs jumped 12.3% as previous tax breaks expired
Canada’s headline inflation rate eased slightly in January 2026, dipping to 2.3% from a three-month high of 2.4% in December. This figure came in just under market expectations and aligned with the Bank of Canada’s forecasts, which predicted inflation hovering near 2.5% before eventually dropping below the 2% target. A significant driver of these year-over-year figures remains the base effects from the GST/HST tax break implemented in January 2025.
The cooling of the overall rate was largely propelled by a sharp deepening of transportation deflation, which hit -17% following a nearly 17% plunge in gasoline prices. Additionally, cost pressures moderated in the shelter sector (slowing to 1.7%) and for household operations and furnishings (dropping to 2.5%).
In contrast, other sectors saw a notable heating up:
- Food prices accelerated to 7.3%, driven by the expiration of previous tax breaks.
- Restaurant prices saw a particularly steep jump, rising by 12.3%.
Despite these specific spikes, underlying inflationary pressures appear to be receding. The trimmed-mean core rate, a key metric for the Bank of Canada fell to 2.4%, its lowest level since April 2021 and well below the 2.6% anticipated by analysts.
Implications for the Bank of Canada
Based on the latest data, the Bank of Canada (BoC) is currently in a “wait and see” mode. Todays inflation report of 2.3% reinforces the narrative that the central bank will likely hold interest rates steady at its next meeting on March 18, 2026.
The Case for a “Hold” at 2.25%
The current policy rate sits at 2.25%. The fact that headline inflation (2.3%) and the trimmed-mean core rate (2.4%) are both trending toward the 2% target gives the Bank breathing room.
- Alignment with Projections: Since the results were “loosely aligned” with the BoC’s own forecast of 2.5% for early 2026, there is no immediate pressure to hike rates to fight a surprise spike.
- Core Progress: The drop in the trimmed-mean core rate to its lowest level since April 2021 is a “green flag” for the Bank. It suggests that once the temporary tax-related spikes in food and restaurant prices fade, underlying inflation is very well-contained.
Technical Outlook – USD/CAD
From a technical standpoint, USD?CAD continues its advance.
The resurgence in the US Dollar has helped the greenback gain ground following the significant rally we saw from the CAD between November 25 and January 29.
Since then, the US dollar has put in solid gains but is still some way off recovering the November to January selloff.
Immediate resistance rests at 1.3700 before the 1.3750 and the 200-day MA at 1.3817 come into focus.
A move lower here will need to beat support at 1.3500 before any further downside materializes.
USD/CAD Daily Chart, February 17, 2026
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