Ottawa (Rajeev Sharma): Canada’s annual inflation rate may edge higher in January, driven largely by a sharp increase in food prices following the expiration of a temporary federal sales tax break, economists say ahead of the latest data release.
Statistics Canada is set to publish the January consumer price index (CPI) report on Tuesday, a day later than usual due to a regional holiday affecting multiple provinces.
A survey indicates economists expect inflation to remain steady at 2.4 per cent year-over-year. However, some analysts believe the headline figure could rise slightly.
RBC assistant chief economist Nathan Janzen projects inflation to increase to 2.6 per cent, citing base effects linked to a tax policy introduced last year. Beginning in mid-December 2024, the federal government temporarily removed the federal sales tax on restaurant meals and several household essentials for two months.
Since January 2025 was the only full month under the tax holiday, prices for dining and some grocery items are expected to appear significantly higher when compared year-over-year.
Janzen noted that food price inflation could surge above seven per cent, largely due to higher restaurant costs relative to the tax-reduced levels seen a year earlier.
Desjardins forecasts a similar trend, estimating overall inflation at around 2.5 per cent for January. Deputy chief economist Randall Bartlett said the jump in food inflation is partly technical but also reflects broader cost pressures.
Prices for key grocery items such as coffee and beef have risen, driven in part by higher import costs. A weaker Canadian dollar earlier in the year and ongoing trade disruptions with the United States have increased expenses across the food supply chain, pushing up retail prices.
Meanwhile, some factors are expected to moderate overall inflation. Continued relief from the removal of the federal consumer carbon price last April is helping keep gasoline prices lower, while easing shelter costs are also expected to limit broader price growth.
Analysts note that slower growth in new home prices and the impact of recent Bank of Canada rate cuts should gradually reduce mortgage interest costs.
The Bank of Canada will review one more inflation report for February before its next interest rate decision on March 18. The central bank held its benchmark rate unchanged in January, with Governor Tiff Macklem indicating policymakers remain comfortable with the current level despite ongoing economic uncertainty.
Economists say that even if inflation rises modestly in January, easing trends in the Bank of Canada’s core inflation measures suggest underlying price pressures remain contained.
