The Canadian inflation rate accelerated slightly in January, driven mainly by higher energy costs.
Statistics Canada’s consumer price index on Monday showed headline inflation rose 1.9% year-over-year in January, up from the 1.8% gain in December and first increase in three months. The hotter inflation rate was generally in line with market expectations.
Compared with the same month a year earlier, energy prices rose 5.3% in January following a 1% increase in December, driven by higher prices for gasoline and natural gas. Prices at the pump increased 8.6% on a year-over-year basis in January, up from a 3.5% increase in December.
The increase in the January inflation rate was partially muted by the federal government’s temporary GST/HST tax break, which helped to lower food costs, particularly from restaurants. Prices for the food component fell 0.6% on a year-over-year basis in January - the first yearly decrease since May 2017 - as prices for food purchased from restaurants plunged 5.1% year over year in January. That was more than triple the previous record decline of 1.6% in December 2024.
Canadians also paid less for alcoholic beverages purchased from stores, down 3.6% in January 2025 compared with the same month one year earlier, following a decline of 1.3% in December.
Introduced in December, the GST/HST tax break ended over the weekend. Without the tax break, the annual inflation rate would have accelerated to 2.7%, up from 2.3% in December.
With headline inflation hovering near its preferred 2% target, the Bank of Canada in late January lowered its key overnight lending rate for the sixth consecutive time, dropping it by 25 basis points to 3%. Some economists expect the Bank to stand pat on interest rates in March, although much will depend on possible US tariffs. US President Donald Trump threatened 25% tariffs on imports of Canadian goods earlier this year but pushed implementation back to March to give the federal government more time to ramp up border security.
It remains unclear if Trump will follow through with his tariff threat, but any upset to Canadian exports to the US is expected to have major negative economic impacts on this side of the border.
